University of Antique

College of Teacher Education

Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

WILMAR VILLANOCHE BSED 3B

Check your progress 2

Calculate the compound amount when $4000 is deposited in an account earning 6% interest, compounded
monthly, for 2 years.

Solution: Use the compound amount formula.

P=4000 , r=6 %∨0.06 ,n=12 ,t=2

nt
r
( )
A=P 1+
n
12• 2
0.06
A=4000 1+( 12 )
24
A=4000 ( 1+0.005 )

A=4000 ( 1.005 )24

A=4000(1.127160)

A=4508.64

The compound amount after 2 years is approximately $4508.64

1
 University of Antique
College of Teacher Education
Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

Check your progress 3
Calculate the future value of $2500 earning 9% interest, compounded daily, for 4 years.

Solution: Use the compound amount formula.

P=2500 , r =9 %∨0.09 , n=360 , t=4

nt
r
A=P 1+( ) n
360• 4
0.09
A=2500 1+( 360 )
A=2500 (1+ 0.00025 )1440
1440
A=2500 (1.00025 )

A=2500(1.4332649)

A=3583.16

The future amount after 4 years is approximately $3583.16

Check your progress 4

How much interest is earned in 6 years on $8000 deposited in an account paying 9% interest,
compounded monthly?

2
 University of Antique
College of Teacher Education
Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

Solution: Use the compound amount formula.

P=8000 ,r =9 %∨0.09 , n=12 , t =6

nt
r
A=P 1+( ) n
12 •6
0.09
A=8000 1+ ( 12 )
A=8000 ( 1+ 0.0075 )72
72
A=8000 ( 1.0075 )

A=8000(1.7125527)

A=13,700.42

I = A−P

I =13,700.42−8000

I =5700.42
Solution: Use the compound amount formula.
The amount of interest earned is approximately $5700.42
P=3500 , r =6 %∨0.6 , n=2, t=5
nt
r
A=P 1+( ) n
2 •5
0.06
A=3500 1+ ( 2 )
10
A=3500 (1+ 0.03 )

A=3500 (1.03 )10

Check your progress 5
A=3500(1.343916379)
Determine the compound amount when $3500 is deposited in an account earning an interest rate of 6%,
A=4703.707328∨4703.71
compounded semiannually, for 5 years.

The compound amount after 5 years is approximately $4703.71

3
 University of Antique
College of Teacher Education
Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

Check your progress 6

How much money should be invested in an account that earns 9% interest, compounded semiannually, in
order to have $20,000 in 5 years?

Solution: Use the present value formula.

A=20,000 ,r =9 %∨0.09 , n=2, t=5

A
P= nt
r
( ) 1+
n

20,000
P=
0.09 2• 5
( 1+
2 )
20,000
P=
( 1+0.045 )10

20,000
P=
1.552969

P=12,878.55

$12,878.55should be invested in the account.

4
 University of Antique
College of Teacher Education
Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

Check your progress 7

Use the finance feature of a calculator to determine how much money should be invested in an account
that earns 6% interest, compounded daily, in order to have $25,000 in 15 years.

Solution: Use the present value formula.

A=25,000 ,r =6 %∨0.06 , n=360 ,t=15

A
P= nt
r
( ) 1+
n

25,000
P=
0.06 360• 15
( 1+
360 )
25,000
P=
( 1+0.00016666 )5400

25,000
P=
( 1.00016666 )5400

25,000
P=
2.459418668

P=10,165.00376∨10,165.00

$10,165.00should be invested in the account.

5
 University of Antique
College of Teacher Education
Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

Check your progress 8
Assume that the average new car sticker price in 2013 is $28,000. Use an annual inflation rate of 5% to
estimate the average new car sticker price in 2030.

Solution: Use the compound amount formula.

P=28 ,000 , r=5 %∨0.05 ,n=1 ,t=17

nt
r
A=P 1+( )
n
1 •17
0.05
A=28,000 1+( 1 )
A=28,000 (1+ 0.05 )17
17
A=28,000 (1.05 )

A=28,000(2.2920183)

A=64,176.51

The average new car sticker price in 2030 will be approximately $ 64,176.51

Check your progress 9

6
 University of Antique
College of Teacher Education
Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

Suppose you purchase an insurance policy in 2015 that will provide you with $500,000 when you retire in
4o years. Assuming an annual inflation rate of 7%, what will be the purchasing power of half a million
dollars in 2055?

Solution: Use the present value formula.

A=500,000 ,r =7 %∨0.07 , n=1, t=40

A
P= nt
r
( ) 1+
n

500,000
P=
0.07 1 •40
( 1+
1 )
500,000
P=
( 1+0.07 )40
Solution: Use the compound amount formula.
500,000
P=
14.9744578
P=100 , r =4 %∨0.04 , n=4 , t=1
P=33,390.19nt
r
A=P 1+ ( )
In 2055, then purchasing power of $500,000 will be approximately $33,390.19.

0.04 4 •1
A=100 1+ (
Check your progress
4 10 )
A A=100
bank offers a certificate of deposit at an annual interest rate of 4%, compounded quarterly. Find the
(1+0.01 )4
effective rate. Round to the nearest hundredth of a percent.
4
A=100 (1.01 )

A=100(1.040604)

A=104.06

I = A−P

I =104.06−100

7 I =4.06
The effective interest rate is 4.06%.
 University of Antique
College of Teacher Education
Bachelor of Secondary Education
Sibalom, Antique

MATH 18 Mathematics of Investment

Check your progress 11

Which investment has the higher annual yield, one that earns 5% compounded quarterly or one that earns
5.25% compounded semiannually?

nt 4 •1
r 0.05
( ) (
1+
n
= 1+
4 ) =1.050945

nt 2• 1
r 0.0525
( ) (
1+
n
= 1+
2 ) =1.053189

An investment of 5.25% compounded semiannually has a higher annual yield than an investment that
earns 5% compounded quarterly.