COMPOUND INTEREST

Compounded
- earning is added to
the principal at
regular intervals &
the sum becomes the
new principal.
Compound amount
- final amount
Compound interest
- difference between
the compound
amount and the
original principal.
NOTE: The interest
may be compounded
annually, semi-
annually, quarterly,
or monthly.
COMPOUND
INTEREST FORMULA
Different from simple
interest, the
compound interest
has conversion
periods in a year, that
is:
- annually (m=1)
- semi-annually (m=2)
- quarterly (m=4)
- monthly (m=12)
The converted rate
will be denoted by i.
𝑛
𝐹 = 𝑃 (1 + 𝑖 )
𝑟
where i =
𝑚
 r = annual
interest rate
𝑛 = 𝑚𝑡
t = no. of years
EXAMPLE 1:
How much interest
will Php 70 000 earn
for 1 2 years if invested
1

at 8% compounded
semi-annually?
EXAMPLE 2:
Lina deposited Php 1
500 in a bank with
12% interest
compounded
quarterly. How much
will she have in her
account at the end of
one year?
SW:
1. Mr. Fernando
wants to have Php 40
000 in his account by
the end of 3 years.
How much should he
invest today in the
bank paying 8.5%
interest compounded
semi-annually?
2. Harlene deposited
Php 5 000 in a bank
paying 12%
compounded
quarterly. After 4
years and 5 months,
she decided to close
her account. How
much money would
she able to get from
the bank?
 CONTINUOUS
COMPOUNDING
Interest compounded
daily
𝑟𝑡
𝐹 = 𝑃𝑒
EXAMPLE:
Dorina would like to
have Php 5 000 one
year from today. How
much should she
deposit in a savings
bank paying 10%
converted daily?