Professional Documents
Culture Documents
Ic = F – P
= ₱ 11,576.25 - ₱ 10,000
Ic = ₱ 1,576.25
Based from the table above, it was cleared that the amount at the end of each year is just
the amount at the end of the previous year times (1 +r). In other words, multiply the amount of
year each by (1+r). Hence, the formula for the maturity value (F) after t years, given the annual
interest rate (r).
F = P (1+r)t where,
F = Final amount or Maturity (Future) Value
P = Principal or Present Value
t = term or time in years
r = interest rate
Ic = Compound Interest
Ic = F – P
Maturity Value and Compound Interest
Example No. 1
Find the maturity value and the compound interest if ₱ 50,000 is interested at an interest
rate of 4% compounded annually in 5 years.
P = ₱ 50,000
r = 4%
t = 5 years
m = annually
F = P (1 + r)t
= ₱ 50,000 (1 + 4%)5
= ₱ 50,000 (1.04)5
= ₱ 50,000 (1.216652902)
F = ₱ 60,832.65
Ic = F – P
= ₱ 60,832.65 - ₱ 50,000
= ₱ 10,832.65
Example No. 2
Your mother opened a savings account in your name and deposited ₱ 25,000 at an
interest rate of 0.12% compounded annually when you graduate from Senior High School and
did not withdraw any amount until you graduate from a 4-year course. How much will be the
final amount after 4 years?
P = ₱ 25,000
r = 12%
t = 4 years
m = annually
F = P (1 + r)t
= ₱ 25,000 (1 + 12%)4
= ₱ 25,000 (1.0.0012)4
= ₱ 25,000 (1.004808647)
F = ₱ 25,120.22
F = P (1 + i)n
F = Maturity (Future) Value
P = Present Value
i = interest rate / conversion period
j = interest rate annually
m = conversion period
n = total conversion period for the entire term
Example 1.
XYZ Company invested ₱ 750,000 at 12% compounded quarterly, find the maturity
value of the compound interest after 5 years.
P = ₱ 750,000
j = 12%
m=4
t = 5 years
12%
i= =¿3%
4
n = 4*5 = 20
F = P (1 + i)n
= ₱ 750,000 (1 + 3%)20
= ₱ 750,000 (1.03)20
= ₱ 750,000 (1.806111235)
F = ₱ 1,354,583.43
Ic = F – P
= ₱ 1,354,583.43 - ₱ 750,000
Ic = ₱ 604,583.43
Example 2.
Garnette borrows ₱ 250,000 for the expansion of his business and promises to pay the
principal and interest of 7% compounded semi-annually. How much must he repay after 5
months?
P = ₱ 250,000
j = 7%
m=2
t = 5 years
i = 3.5% or 0.035%
n = 5*2 = 10
F = P (1 + i)n
= ₱ 250,000 (1 + 3.5%)10
= ₱ 250,000 (1.035)10
= ₱ 250,000 (1.410598761)
F = ₱ 352,649.69
F = ₱ 50,000
j = 12%
t = 4 years and 9 months
m =12
12%
i= = 1% or 0.01
12
9
n = 4 ∗12=57
12
P = F (1 + i)-n
= ₱ 50,000 (1 + 1%)-57
= ₱ 50,000 (1.01)-57
= ₱ 50,000 (0.567128789)
P = ₱ 28,356.44
A/S
F
P=
( 1+i )n
₱ 50,000
= ( 1+ 0.01 )57
₱ 50,000
= 1.763267917
P = ₱ 28,356.44
( FP ) n
-1=i
i = ¿ ¿ – 1]
j
i= m
j=m*i
1
F
j=m[ ( ) P
n
– 1]
Example 4.
At what rate compounded quarterly will ₱ 25,000 become ₱ 37,500 at the end of 12
years?
P = ₱ 25,000
F = ₱ 37,500
t = 12 years
m=4
n = 12*4 = 48
1
F
j=m[ ( ) – 1]
P
n
1
₱ 37,500
= 4 [( ₱ 25,000 ) 48
– 1]
1
= 4 [( 1.5 ) 48 – 1]
= 4 [ 1.008482968 – 1]
= 4 [ 0.008482968]
j = 0.0339
j = 3.39%
Example 5.
What must be the rate of interest for a sum of money to double itself in 10 years if money
is converted semi-annually?
Let P = ₱ 1
F=₱2
t = 10 years
m=2
n = 20
j =?
1
F
j=m[ ( ) – 1]
P
n
1
₱2
= 2 [(
₱ 1)
– 1] 20
1
= 4 [( 2 ) 20 – 1]
= 4 [ 1.03524924 – 1]
= 4 [ 0. 03524924]
j = 0.0705 or 7.05%
Finding the Term or Time of Investment\
F = P (1 + i)n
F
P
= (1 + i)n
F
(1 + i)n = P
n log (1 + i) = log F – log P
log F−log P
n=
log(1+i)
n=t*m
n
t= m
Example 6.
How long will it take for ₱ 32,500 to accumulate to ₱ 45,650 at 9% compounded bi-
monthly?
F = ₱ 45,650
P = ₱ 32,500
j = 9% or 0.09
m=6
9%
i= ¿ 1.5 %∨0.015
6
log F−log P
n=
log(1+i)
log 45,650−log 32,500
= log(1+ 0.015)
4.659440782−4.511883361
= 0.006466042
0.14755742
= 0.006466042
n = 22.82
n 22.82
t= =
m 6
t = 3.80 years or 3 years and 9 months, 18 days
Example 7
In how many months will a certain amount double itself at 8% converted semi-annually?
F=₱2
P = ₱1
m=2
j = 8%
t=?
log F−log P
n=
log(1+i)
log 2−log 1
n=
log(1+0.04)
log 2−log 1
n=
log(1.04)
0.301029995−0
n=
0.017033339
n = 17.67
n 17.67
t=
m
= 2
= 8.84 years
t = 8 years
0.84 x 12 = 10 months
0.08 x 30 = 2.4 days
0.4 x 24 = 9.6 hours
Equivalent Rates
Two rates are said to be equivalent if they yield equal amounts at the end of the same
term. Nominal rate (j1) is equivalent to nominal rate (j2), if and only if the accumulated value o
any amount P at a j1 is equal to the accumulated value of the same amount P at j2 for the same
period of investment.
F1 = F2
m1t m2t
j1 j2
P = i+ ( m1 ) = P = i+( m2 )
m1t m2t
j1 j2
[ ( i+
m1 ) ( = i+
m2 ) ]1/t
m1 m2
j1 j2
( i+ ) ( )
m1
= i+
m2
m2
j1 j2
= (i+
m2 )
i+ m1
m1
m2
j1 j2
= (i+
m2 )
m1
–1
m1
j 1= m ¿ ¿ – 1]
Example 1.
What nominal rate compounded semi-annually is equivalent to 10% compounded
quarterly?
j1 = ? m1 = 2 j2 = 10% m2 = 4
j 1= m ¿ ¿ – 1]
= 4 ¿ ¿ – 1]
= 4 [(1 + 2.5%)2 – 1]
= 4 [(1 + 0.025)2 – 1]
= 4 [(1.025)2 – 1]
= 4 (1.050625 – 1)
= 4 (0.050625)
j1 = 0.2025 or 20.25%
1) What simple interest rate corresponds to 8% compounded quarterly in a 5-year transaction?
Fr = F(j1m)
2) At what rate compounded semi-annually will a certain amount yield the same accumulated
value if it is invested at 10% simple interest in a six-year period?
3) Find the nominal rate, compounded quarterly is equivalent to 12% compounded monthly.
4) What rate compounded bi-monthly is equivalent to 6% converted semi-annually?
5) Which interest rate has better yield: 6.25% compounded semi-annually or 6.75%
j m
( )
compounded quarterly? Hint: Compare their equivalent effective rates, w=[ 1+
m
−1].
3. Mr. Renz made a time deposit of ₱ 2,000,000 in a savings bank. The deposit was left to
accumulate at 8% compounded semi-annually for the first five years and 12% quarterly for the
next 3 years. If no withdrawal was made, find the amount at the end of the term.
₱ 2,000,000 F1 F2
j1 = 8%
m1 = 2
t = 5 years
i = 4%
n = 10
F1 = P (1 + i)n
= ₱ 2,000,000 (1 + 4%)10
= ₱ 2,000,000 (1.04)10
= ₱ 2,000,000 (1.480244285)
F1 = ₱ 2,960,488.57
j2 = 12%
m2 = 4
t = 3 years
i = 3%
n = 12
F1 = P (1 + i)n
= ₱ 2,960,488.57 (1 + 3%)12
= ₱ 2,960,488.57 (1.03)12
= ₱ 2,960,488.57 (1.425760887)
F1 = ₱ 4,220,948.81
4. Compute for the interest and the amount, compounded quarterly on:
a) ₱ 15,750 for 5 years at 6.5%
b) ₱ 17,500 for 6 years at 4%
c) ₱ 25,250 for 4 years at 8.25%
5. j1 =?, m1 = 4j2 = 12%, m2 = 2
j 1= m ¿ ¿ – 1]
= 4 ¿ ¿ – 1]
= 4 [(1 + 6%)1/2 – 1]
= 4 [(1 + 0.06)1/2 – 1]
= 4 [(1.06)1/2 – 1]
= 4 (1.029563014 – 1)
= 4 (0. 029563014)
j1 = 0.1183 or 11.83%
6. Prove that 11.83% compounded quarterly is equivalent to 12% compounded semi-annually.
7. What amount will Mr. X accept from his creditor on June 1, 2020, to discharge a debt of
₱ 90,000 due on December 1, 2023 if the interest rate is 6% compounded semi-annually?
June 1, 2020 June 1, 2021 June 1, 2022 June 1, 2023
July1, August 1, September 1, October 1, November 1, December 1
8. Jake Cornejo owes Jester Maverick ₱ 75,000 due on July 1, 2025. What will Jester receive
from Jake on March 1, 2020 to settle the debt if it is agreed that money is worth 10%
compounded quarterly?
F = ₱ 75,000
j = 10%, i = 2.5% or 0.025
m=4
t = March 1, 2020 – July 1, 2025
t = 5 years and 4 months
P =?
F
P=
( 1+i )n
n = 5.333 x 4 = 21.332
F
P=
( 1+i )n
₱ 75,000
=
( 1+ 2.5 % )21.332
₱ 75,000
=
( 1.025 )21.332
₱ 75,000
= 1.6934075
P = ₱ 44,289.40
9. If ₱ 25,000 accumulates to ₱ 31,250.50 after being invested for 10 years, wh at is the
interest rate converted semi-annually that the investment paid?
P = ₱ 25,000
F = ₱ 31,250.50
t = 10 years
m=2
n = 20
j =?
j= m ¿ ¿ – 1]
= 2 ¿ ¿ – 1]
= 2 [(1.225509804)1/20 – 1]
= 2 [(1.0101219714 – 1]
= 2 (0.0101219714)
= 0.0204
j = 2.04%
10. Carlo Castro receives a loan of ₱ 47,250 with an interest at 5% compounded quarterly. He
promises to pay his creditor in full on the day when ₱ 55,000 will be due. Find when Mr. Castro
pays.
P = ₱ 47,250
F = ₱ 55,000
j = 5%
m=4
t =?
log F−log P
n=
log(1+i)
log55,000−log 47,250
¿
log(1+1.25 %)
log55,000−log 47,250
¿
log1.0125
0.065960876
¿
0.005395032
n = 12.23
n 12.23
t= m
=
4
=3.06 years
Example 1. Find the amount and present value of an annuity of ₱ 3,000 payable for 4 years at 8%
compounded quarterly.
R = ₱ 3,000
t = 4 years
j = 8%
m=4
8%
i= = 2% = 0.02
4
n = 4 x 4 = 16
( 1+i )n −1
S = R[ ]
i
( 1+0.02 )16 −1
= ₱ 3,000[ ]
0.02
( 1.02 )16−1
= ₱ 3,000[ ]
0.02
1.372785705−1
= ₱ 3,000[ 0.02
]
0.372785705
= ₱ 3,000[ 0.02
]
= ₱ 3,000 (18.63928525)
S = ₱ 55,917.86
( 1+i )n −1
S = R[ ]
i
( 1+0.0 15 )20−1
= ₱ 10,500[ ]
0.0 15
( 1.0 15 )20−1
= ₱ 10,500[ ]
0.0 15
1.3 46855007−1
= ₱ 10,500[ 0.0 15
]
0.3 46855007
= ₱ 10,500[ 0.015 ]
= ₱ 10,500 (23.1236671)
S = ₱ 242,798.50
Example 4
Fitch purchased a car and he paid ₱ 550,000 down payment and promises to pay ₱ 12,500
every month for 5 years at 9% compounded monthly. What is the cash value of the car?
Down payment = ₱ 550,000
R = ₱ 12,500
j = 9%
m = 12
t = 5 years
i = 0.75% or 0.0075
n = 5 x 12 = 60
Cash Value = DP + A
₱ 2,500
= 0.612226078
RS = ₱ 4,083.46
What sum will be paid at the end of each quarter for 10 years and 6 months if the present value is
₱ 125,000 and interest is paid at 12% converted quarterly?
A = ₱ 125,000
t = 10 years and 6 months
j = 12%
m=4
n = 42
i = 3% or 0.03
Ai
RA =
1−( 1+i )−n
(₱ 125,000)(0.03)
= −42
1−( 1+0.03 )
₱ 3,750
=
1−( 1.03 )− 42
₱ 3,750
= 1−0.288959224
₱ 3,750
= 0.711040776
RS = ₱ 5,273.96
Zacakary Ace bought a TV set that costs ₱ 72.500. He paid ₱ 35,000 as down payment and
promises to pay the balance at the end of every month for 3 years. Find the monthly payment if
the interest rate is 15% compounded monthly.
Cash Value = ₱ 72,500
DP = ₱ 35,000
t = 3 years
m = 12
j = 15%
n = 3 x 12 = 36|
i = 1.25% or 0.0125
A = CV – DP
= ₱ 72,500 - ₱ 35,000
A = ₱ 37,500
Ai
RA =
1−( 1+i )−n
(₱ 37,500)(0.0125)
= −36
1−( 1+0.0125 )
₱ 468.75
=
1−( 1.0125 )−36
₱ 468.75
= 1−0.63940915 7
₱ 468.75
= 0.360590842
RA = ₱ 1,299.95