Mathematics in the Modern World

1
Mathematics of Finance

Module 10 Compound Interest

At the end of this module, you are expected t0:

1 Understand the concept of compound interest.

2. Compute for the compound interest and amount
3. Find the present value

Compound Interest
It is an interest computed based on the original principal and the
accumulated past interest.
Compounding or conversion period(m)- time between successive interest computation
Total number of conversion periods(n)= tm
An amount may be compounded or converted:
Annually m=1
Semi-annually m=2
Quarterly m=4
Monthly m=12

Formula for finding Compound amount (F)

F= P(1+i)n
Where i =j/m
I= F-P

Ex. Find the interest and compound amount on a loan of Php54,600 for 5 years and 6 months with an
interest of 8% compounded quarterly.
F= Php (54600)(1+0.02)22
F= Php 84,410.49
I= F-P
Course Module
 I= Php 29,810.49
Present Value – defined as the principal P which is invested at a given time t at a given interest rate
r which will amount to F when F is due
P= F(1+i)-n
Ex. Find the present value of Php 42,000 due at the end of 3 years and 9 months if money is invested at
5.6% compounded quarterly.
P= Php (42,000)(1+0.014)-15
P= Php34,094.16

References and Supplementary Materials

Books and Journals
1. Richard Aufmann ,Joanne Lockwood ,Richard Nation ,Daniel Clegg ,Susanna S.
Epp;2018;Mathematics in the Modern World;Manila ,Philippines;Rex Bookstore,Inc
2. Susana S. Epp;2011;Discrete Mathematics:An Introduction to Mathematical Reasoning
;Brooks/Cole ;Cengage Learning
3. Darwin P. Paguio, et al;2013;Mathematics of Investment; Tinajeros,Malabon;
Jimczyville Publications