FINDING INTEREST

Prepared by:
RATE AND TIME IN SIR KIKO
COMPOUND INTEREST
 G
INT
Preliminary ERE
2
ST
RAT
E
AND
Sometimes investors are interested to find TIM
E IN
out how much time is needed to accumulate CO
MPO
a desired amount in investing a certain UND
INT
principal. ERE
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INT
ERE
Example 1 3
ST
RAT
E
AND
How long will it take P3,000 to accumulate to TIM
E IN
CO
P3, 500 in a bank savings account at 0.25% MPO
UND
compounded monthly? INT
ERE
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INT
ERE
Solution 4
ST
RAT
E
AND
Given: TIM
E IN
, CO
  MPO
UND
INT
Find : ERE
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INT
ERE
Solution 5
ST
RAT
E
AND
Since TIM
E IN
CO
  We have MPO
UND
INT
ERE
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INT
ERE
Solution 6
ST
RAT
E
AND
To solve for n, take the logarithm of both TIM
E IN
sides CO
  MPO
UND
INT
ERE
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INT
ERE
Solution 7
ST
RAT
E
AND
TIM
E IN
  periods CO
MPO
the payment should be made for 740 months UND
INT
ERE
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INT
ERE
Example 2 8
ST
RAT
E
AND
How long will it take P1,000 to earn P300 if TIM
E IN
CO
the interest is 12% compounded semi- MPO
UND
annually? INT
ERE
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 G
INT
ERE
Solution 9
ST
RAT
E
AND
Given: TIM
E IN
Find:
CO
  MPO
Since
UND
INT
Then
ERE
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INT
ERE
Solution 10
ST
RAT
E
AND
TIM
E IN
CO
  MPO
UND
INT
ERE
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INT
ERE
Solution 11
ST
RAT
E
AND
TIM
E IN
Interest
  is earned only at the end of the period so answer CO
MPO
should be rounded off to the next whole number. (n=5 UND
INT
periods)
ERE
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INT
ERE
Example 12
ST
RAT
E
AND
At what nominal rate compounded semi – TIM
E IN
CO
annually will P10,000 accumulate to P15,000 MPO
UND
in 10 years? INT
ERE
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 G
INT
ERE
Solution 13
ST
RAT
E
AND
Given TIM
E IN
CO
  MPO
UND
INT
ERE
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INT
ERE
Solution 14
ST
RAT
E
AND
TIM
E IN
CO
  MPO
UND
INT
ERE
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INT
ERE
Solution 15
ST
RAT
E
AND
TIM
E IN
The
  interest rate per conversion period is CO
MPO
2.05% UND
INT
ERE
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INT
ERE
Solution 16
ST
RAT
E
AND
The nominal rate (annual rate of interest) is TIM
E IN
CO
  MPO
UND
INT
Hence the nominal rate is ERE
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INT
ERE
Supplementary Problem 17
ST
RAT
E
AND
1. At what interest rate compounded quarterly TIM
E IN
CO
will money double itself in 10 years? MPO
UND
Ans: 7% INT
ERE
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INT
ERE
Supplementary Problem 18
ST
RAT
E
AND
2. Jun invested an amount of P100K where he TIM
E IN
obtained an interest of P16K at the end of 2 ½ CO
MPO
years. At what nominal rate compounded semi – UND
INT
annually was it invested? ERE
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INT
ERE
Supplementary Problem 19
ST
RAT
E
3. Jen invested an amount of P400K at 5% AND
TIM
E IN
compounded quarterly. How long should she CO
MPO
let the investment stay if she wants to earn UND
INT
P50K? ERE
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INT
ERE
Supplementary Problem 20
ST
RAT
E
AND
4. Mr. Retanan was given a loan at 10% TIM
E IN
compounded monthly. When should he pay it so CO
MPO
that it will just earn only 10% of the amount UND
INT
borrowed? ERE
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INT
ERE
Supplementary Problem 21
ST
RAT
E
AND
TIM
5. At what interest rate compounded quarterly E IN
CO
should an amount be invested if the interest MPO
UND
earned is 20% of the invested amount for 5 years? INT
ERE
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INT
ERE
Nominal vs Effective rates 22
ST
RAT
E
AND
Equivalent rates – two annual rates with different TIM
E IN
conversion periods that will earn the same CO
MPO
compound amount at the end of a given number of UND
INT
years. ERE
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INT
ERE
Nominal vs Effective rates 23
ST
RAT
E
Nominal rate – annual interest rate (may be compounded AND
more than once a year) TIM
E IN
CO
 
Effective rate – the rate compounded annually that will MPO
give the same compound amount as a given nominal rate: UND
denoted by INT
ERE
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INT
ERE
Example 24
ST
RAT
E
AND
TIM
E IN
What effective rate is equivalent to 10% CO
MPO
compounded quarterly? UND
INT
ERE
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INT
ERE
Solution 25
ST
RAT
E
AND
Given: Find: TIM
E IN
Since CO
  MPO
UND
INT
ERE
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INT
ERE
Solution 26
ST
RAT
E
AND
TIM
E IN
Raise
  both sides to to obtain CO
MPO
UND
INT
ERE
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INT
ERE
Solution 27
ST
RAT
E
AND
TIM
E IN
  Hence, the effective rate equivalent to 10% CO
MPO
compounded quarterly is 10.38% UND
INT
ERE
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INT
ERE
Problem 28
ST
RAT
E
Complete the table by computing for the rates equivalent to
AND
the ff. nominal rates. TIM
Given Interest Rate Equivalent Interest Rate E IN
12% compounded monthly ________ compounded annually CO
MPO
8% compounded semi-annually _______ compounded quarterly
UND
12% compounded monthly ____ compounded semi- INT
annually ERE
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INT
ERE
Problem 29
ST
RAT
E
Complete the table by computing for the rates equivalent to
AND
the ff. nominal rates. TIM
Given Interest Rate Equivalent Interest Rate E IN
2% compounded annually _______ compounded quarterly CO
MPO
6% compounded quarterly ____ compounded semi-
UND
annually
INT
0.5% compounded semi-annually ________ compounded annually ERE
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