Scribd
Upload
640 views

Genmath Compound Interest

The document discusses the concept of compound interest, which is interest calculated periodically and added to the principal amount. It defines key terms like compound amount, compounding period, annual interest rate, and periodic interest rate. Examples are provided to demonstrate calculating compound interest, principal, compound amount, and interest over time at given interest rates compounded periodically. Exercises at the end practice applying these compound interest concepts.

Uploaded by

Andrei Lee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
640 views

Genmath Compound Interest

The document discusses the concept of compound interest, which is interest calculated periodically and added to the principal amount. It defines key terms like compound amount, compounding period, annual interest rate, and periodic interest rate. Examples are provided to demonstrate calculating compound interest, principal, compound amount, and interest over time at given interest rates compounded periodically. Exercises at the end practice applying these compound interest concepts.

Uploaded by

Andrei Lee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 23

COMPOUND INTEREST

DLSUD-SHS
General Mathematics
THE CONCEPT OF
COMPOUND
INTEREST
is the procedure
in which interest is
periodically
calculated
and added to the
principal.
1. COMPOUND INTEREST ( I )
This is an interest resulting from the periodic
addition of simple interest to the principal
amount

2. COMPOUND AMOUNT ( A )
This is an accumulated amount composed
of the principal and the compound interest.
Recall that in SIMPLE INTEREST
for a given principal amount P,
for a time period of t years,
and interest rate r
the accumulated value / future value
of P is given by:
A = P(1 + rt)
Present worth of Future Value of Principal Amount
Period Principal Amount (F)
(P)
1 P P(1+i)
2 P(1+i) P(1+i)*(1+i) = P(1+i)2
3 P(1+i)2 P(1+i)2*(1+i) = P(1+i)3
4 P(1+i)3 P(1+i)3 *(1+i) = P(1+i)4
. . .
. . .
. . .

n-1 P(1+i) n-2 P(1+i)n-2 *(1+i) = P(1+i)n-1


n P(1+i) n-1 P(1+i)n-1 *(1+i) = P(1+i)n

Formulas: A = P(1+i)n
I=A-P
3. COMPOUNDING/CONVERSION PERIOD (m)
is the number of times in a year the interest will be
compounded.

CONVERSION NO. OF COMPOUNDING PER


PERIOD COMPOUNDINGS YEAR
PER YEAR (m)
Annual 1 1 year

Semiannual 2 6 months

Quarterly 4 3 months

Bimonthly 6 2 months

Monthly 12 1 month
CONVERSION PERIOD
The interest earned during a period is
“converted” to principal at the end of the
period and becomes the new principal for the
succeeding period.

The TOTAL NUMBER OF CONVERSION


PERIODS ( n )
n = t*m,
t = term of the loan or investment in years
m = conversion period
4. ANNUAL INTEREST RATE ( r )
is the interest on which the stated compound
interest is based.

5. PERIODIC INTEREST RATE ( i )


is the rate of interest earned in one conversion
period.
i= r/m

Note:
If the conversion period is not indicated in the
problem, assume that the conversion period is
annual or m=1.
Example #1: COMPOUND AMOUNT (A)

Virgilio Secundo borrows Php4,800 with interest at


18% compounded quarterly. How much should he
pay to the creditor after 4 years to pay off his debt?
Example #2: COMPOUND AMOUNT (A)

Two years ago, Sostenes Cabaruan invested


Php29,300 compounded bimonthly at 12%. How
much is his money now?
Example:
Accumulate ₱24300 for 7 years and 6
months at 12% compounded
1. annually
2. semiannually
3. quarterly
4. every 2 months
Examples:
1. Find the compound amount and interest
on Php360,000 for 8 years and 6 months
at 10% compounded semiannually.

2. Find the amount due if ₱6800 is invested


at 12% compounded quarterly for 4 years
and 3 months.
6. PRESENT VALUE ( P )
of the investment is the principal which, if
invested for a given time t and a given
interest rate r, will accumulate on its
maturity date.

A n
P or P  A( 1  i )
(1  i ) n
Example #1: PRINCIPAL (P)

How much should be deposited now at 18%


compounded monthly in order to accumulate
Php13,740 in 3 years?
Example #2: PRINCIPAL (P)

Crispin Secundo has just been notified that the


combined principal and the interest on an amount
that he borrowed 24 months ago at 14%
compounded semiannually, is now Php60,000. How
much of this amount is principal?
Example #1: COMPOUND INTEREST (I)

Find the interest charged on a loan of Php7,000 for 4


years at 11% compounded quarterly.
Example #2: COMPOUND INTEREST (I)

If Php19,000 is invested at 18% compounded


semiannually, find the compound interest in 3 years.
Compound Nominal /Annual Rate (r)

 A 
r  m n  1
 P 
Examples:
1. If ₱20000 will accumulate to ₱45758.55
in 14 years, what is the interest rate
compounded bimonthly?

2. At what nominal rate compounded


quarterly for 8 years will ₱40000 accumulate
to ₱95296.86?
Term (t)

 A
log  
t  P
mlog( 1  i )
Examples:
1. How long would it take for ₱10600 to
mature into ₱15000 if 16% interest is
computed semiannually?

2. When is ₱13200 due if its present value


of ₱10000 is invested at 10% compounded
quarterly?
Exercises:
1. Accumulate ₱3500 for 6 years and 9 months at 8%
converted semiannualy.

2. If ₱5000 is due in 4 years and 3 months at 18%


compounded quarterly, what is its present value?

3. In how many years will a principal triple itself at 10%


compounded semiannualy?

4. A debtor borrows ₱35000 and agrees to pay ₱42000 to


settle his debt after 2 years and 3 months. At what rate
converted monthly is he paying the interest?
Exercises:
5. On the birth of a son, a father wishes to invest sufficient
money in a fund to accumulate to ₱100000 by the time his
son turns 21 years old. How much should he place in the
fund that offers an interest rate of 12% compounded
semiannually?

6. Lilian deposited ₱50000 in a bank that pays interest at


6.6% converted every 2 months. How long will it take her
money to earn an interest of ₱25000?

7. On her 18th birthday, Janet receives ₱20000 as gift from


her parents. If she invests this money in a bank that gives
8% interest rate converted annually, how much money will
she have on her 25th birthday?

You might also like