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COMPOUND INTEREST DAY 1 and 2

This document defines compound interest as interest computed every conversion period where the principal amount includes interest earned at the end of each period. It provides notation and definitions for compound interest, future value, conversion period, principal, and formulas to calculate future value, principal, interest rate, and time. It then provides 10 problems applying these formulas to calculate future values, principals, interest rates, and time for various compound interest scenarios.

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Stela Marie Bugayon
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88 views16 pages

COMPOUND INTEREST DAY 1 and 2

This document defines compound interest as interest computed every conversion period where the principal amount includes interest earned at the end of each period. It provides notation and definitions for compound interest, future value, conversion period, principal, and formulas to calculate future value, principal, interest rate, and time. It then provides 10 problems applying these formulas to calculate future values, principals, interest rates, and time for various compound interest scenarios.

Uploaded by

Stela Marie Bugayon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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COMPOUND

INTEREST
Maria Luisa G. Tarala
Compound Interest
◦An interest computed every conversion
period whose principal amount includes
the interest earned every end of the
conversion period.
◦Conversion period can be either, annually,
semi-annually, quarterly and monthly.
Notation and Definition of Terms
Notation Terminology Definition
I Compound Interest An interest from the periodic
addition of simple interest to the
principal amount or simply the
difference between the compound
amount or simply the difference
between the compound amount
and the original principal.
F Future Value An accumulated amount obtained
by adding the principal and the
compound interest.
Notation and Definition of Terms
Notation Terminology Definition
m Conversion Period The number of times in a year the
interest will be compounded.

The following are the common


conversion periods in a year:

Annually
Semi-annually
Quarterly
Monthly
Notation and Definition of Terms
Notation Terminology Definition
P Principal The money borrowed or invested
FORMULAS TO BE USED
Required Formula
𝑟 !"
Future Value 𝐹 = 𝑃(1 + )
𝑚
𝐹
Principal 𝑃= 𝑟
(1 + )!"
𝑚
#
Interest Rate 𝐹 !"
𝑟=𝑚 −1
𝑃
𝐹
log
Time 𝑡= 𝑃
𝑟
𝑚 𝑙𝑜𝑔 1 +
𝑚
Problem 1

Find the interest earned on ₱15,000 for 1 year at


1. 7% compounded semi-annually.
2. 7% compounded quarterly.
Problem 2

Find the compound amount of ₱2,000 for 1 year at 5%


compounded quarterly.
Problem 3

Determine the compound amount and interest of ₱14,500


invested at 11% compounded semi-annually for 5 years.
Problem 4

Ana borrowed ₱11,300 from Amy at 15% compounded


monthly for 18 months. How much will Amy receive at the
end of the term?
Problem 5

How much will be invested to accumulate ₱87,000 at the


end of 6 years if money earns 9% interest rate,
compounded quarterly?
Problem 6

Aliyah received an amount ₱33,000 from her investment


!
after 45 months. If money is invested at 5 % compounded
"
semi-annually, how much was invested?
Problem 7

Justine invested ₱50,000 for 2 years. At what rate of


interest converted monthly did his money earn if he
received ₱61,000 at the end of the term?
Problem 8

In preparation for his son’s educational tour 18 months


from now, Jeff invested ₱21,000 and wishes to have
₱35,000 by that time. At what rate converted monthly
should the money be invested?
Problem 9

In how many years will ₱23,500 will accumulate to ₱30,000


if invested at 5% compounded quarterly?
Problem 10

An amount of ₱15,250 increased to ₱28,650 if invested at


15.5% compounded semi-annually. Find the term of the
investment.

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