Interest, Maturity,

Future, and Present

Values in Compound
Interest
General Mathematics
Compound Interest
(compounded
annually)
 MATURITY (FUTURE) VALUE AND
COMPOUND INTEREST

where:
F = maturity (future) value
P = principal or present value
r = interest rate
t = term or time in years

The compound interest Ic is given by:

EXAMPLE 1
Find the maturity value and the compound interest if P 10, 000
is compounded annually at an interest rate of 2% in 5 years.
Given: P = 10,000 r = 2% or 0.02 t = 5 years

(a) Maturity Value (F) = ? (b) Compound interest (Ic) = ?

F = P(1 + 𝑟)𝑡 Ic = F - P
F = (10,000)(1 + 0.02)5 Ic = 11,040.081 - 10,000
F = Ᵽ11,040. 081 Ic = Ᵽ1,040.81
EXAMPLE 2
Find the maturity value and interest if P 50,000 is invested at
5% compound annually for 8 years.

Given: P = 50,000 r = 5% or 0.05 t = 8 years

(a) Maturity Value (F) = ? (b) Compound interest (Ic) = ?
F = P(1 + 𝑟)𝑡 Ic = F - P
F = (50,000)(1 + 0.05)8 Ic = 73,872.77 - 50,000
F = Ᵽ73,872.77 Ic = Ᵽ23,872.77
EXAMPLE 3
Suppose your father deposited in your bank account ₽10, 000
at an annual interest rate rate of 0.5% compound yearly when
you graduate from kindergarten and did not get the amount
until you finish Grade 12. How much will you have in your bank
account after 12 years?
Given: P = 10,000 r = 0.5% or 0.005 t = 12 years
(a) Maturity Value (F) = ?
𝑡
F = P(1 + 𝑟)
F = (10,000)(1 + 0.005)12
F = Ᵽ10,616.78
PRESENT OR PRINCIPAL VALUE (P) VALUE
AT COMPOUND INTEREST

where:
P = principal or present value
F = maturity (future) value at the end of the term.
r = interest rate
t = term or time in years
EXAMPLE 1
What is the present value of P50, 000 due in 7 years if money
is worth 10% compounded annually?
Given: F = 50,000 r = 10% or 0.01 t = 7 years
(a) Present Value (P) = ?
𝐹
P=
(1+𝑟)𝑡
50,000
P=
(1+0.1)7
P = Ᵽ25,657.91
EXAMPLE 2
How much money should a student place in a time deposit in
bank that pays 1.1% compound annually so that he will have
P200,000 after 6 years?

Given: F = 200,000 r = 1.1% or 0.011 t = 6 years

(a) Present Value (P) = ?
P = 𝐹(1 + 𝑟)𝑡
−6
P = 200,000(1 + 0.011)
P = Ᵽ187,293.65
Compound Interest:
Compounding More
Than Once A Year
 Definition Of Terms
Frequency of Conversion (m) - number of conversion
periods in one year.
Conversion or interest period (t) - time between
successive conversion of interest.
Total number of conversion periods (n)
n = mt = (frequency of conversion) × (time in years).
Nominal rate (r) - annual rate interest.
Rate (i) of interest for each conversion period

𝑟 annual rate interest

i= =
𝑚 frequency of conversion
DEFINITION OF TERMS
annually : m = 1

semi-annually : m = 2

quarterly : m = 4

monthly : m = 12
EXAMPLE
nominal rates and the corresponding frequencies of conversion
and interest rate for each period.
 MATURITY VALUE (F),
compounding m TIMES A YEAR
F = P (1 + F = P (1 + 𝒊)𝒏
Where:

P = principal or present value

F = maturity (future) value at the end of the term.
r = nominal rate
t = term/ time in years
m = frequency of conversion
𝒓
𝒊= 𝒏 = 𝒎𝒕
𝒎
EXAMPLE 1
Find the maturity value and interest if P10, 000 is deposited in a
bank at 2% compounded quarterly for 5 years.
Given: P = 10,000 r = 0.02 t = 5 years m=4
𝑟 0.02
𝑖= = = 0.005 𝑛 = 𝑚𝑡 = (4)(5)= 20 conversation periods
𝑚 4

Find: maturity value (F) = ? Compound interest (Ic) = ?

𝑛
F = P (1 + 𝑖) I = F - P
20 c
F = 10,000 (1 + 0.005)
Ic = 11,048.96 – 10,000
F = Ᵽ11,048.96
Ic = Ᵽ1,048.96
EXAMPLE 2
Find the maturity value and interest if P10,000 is deposited in a
bank at 2% compound monthly for 5 years.
Given: P = 10,000 r = 0.02 t = 5 years m = 12
𝑟 0.02
𝑖= = 𝑛 = 𝑚𝑡 = (12)(5)= 60 conversation periods
𝑚 12

Find: maturity value (F) = ? Compound interest (Ic) = ?

𝑛
F = P (1 + 𝑖) Ic = F - P
0.02 60
F = 10,000 (1 + ) Ic = 11,050.79 – 10,000
12
F = Ᵽ11,050.79 Ic = Ᵽ1,050.79
EXAMPLE 3
Cris borrows P50,000 and promise to pay the principal and
interest at 12% compounded monthly, How much must he repay
after 6 years?
Given: P = 50,000 r = 0.12 t = 6 years m = 12

Find: maturity value (F) = ? Find: maturity value (F) = ?

F = P (1 + F = P (1 + 𝑖)𝑛
0.12 (12)(6) 𝑟 0.12
F = 50,000 (1 + ) 𝑖= = =0.01
12 𝑚 12
F = 50,000 (1.01) 72 𝑛 = 𝑚𝑡 = (12)(5)= 72
72
F = Ᵽ102,354.97 F = 50,000 (1.01)
F = Ᵽ102,354.97
EXAMPLE 4
Find the present value of P50,000 due in 4 years if money is
invested at 12% compounded semi-annually.
Given: F = 50,000 t = 4 years r = 0.12 m=2
𝑟 0.12
𝑖= = = 0.06 𝑛 = 𝑚𝑡 = (2)(4)= 8
𝑚 2
Find: Present Value (P) = ?
𝐹
P=
(1+𝑟)𝑛
50,000 50,000
P= =
(1+0.06)8 (1.06)8
P = Ᵽ31,370.62
EXAMPLE 5
What is the present value of P25,000 due in 2 years and 6
months if money is worth 10% compounded quarterly?
1
Given: F = 25,000 t = 2 years r = 0.10 m=4
𝑟 0.10 2 1
𝑖 = 𝑚 = 4 = 0.025 𝑛 = 𝑚𝑡 = (2 2 )(4)= 10
Find: Present Value (P) = ?
𝐹
P=
(1+𝑟)𝑛
25,000 25,000
P= =
(1+0.025)10 (1.025)10
P = Ᵽ19,529.96
Let’s Try!

1. What is the amount of maturity value of a loan P20,

000 at 6% compound interest for 3 years?

2. In order to have P50, 000 in 5 years, how much should

you invest if the compound interest is 5%?

3. In a certain bank, Angel invested P88, 000 in a time

deposit that pays 0.5% compound interest in a year. How
much will be her money after 6 years?
Let’s Try!

4. What is the amount of interest of a loan P20, 000 at

6% compound interest for 3 years?

5. On the 7th birthday of her daughter, Shirlee

deposited an amount in a bank peso bond fund that
pays 1.0% interest compounded annually. How much
should she deposit if she wants to have P100, 000 on
her daughter's 18th birthday?
Let’s Try!
Let’s Try!
Let’s Try!
 ASSIGNMENT
Answer the assessment on pages 25 – 27.
Directions: Complete the following statements by
writing the correct word or words and formulas.