TIME VALUE OF MONEY

1.

Simple interest
Formula: Interest = Principal x Rate x Time
= P8,100 x .06 x 10 years = P4,860
Total amount = P8,100 + P4,860 = P12,960

Compound interest
Formula = P8,100 x 1.06 ^ 10 = P14,505.87

Difference = P 14,505.87 – P 12,960

= P1,545.87

Difference between interest =

The compounding of interest exceeds the simple interest.

2. Future Values
a) P3,150 x 1.13^7 = P7,410.70 (1.13xx then press 6 more)
b) P8,453 x 1.07^16 = P24,954.64
c) P89,305 x 1.09^19 = P459,176.06
d) P227,382 x 1.05 ^ 26 = P808,495.97

3. Present Values
a) P17,328 x 1.07 ^ -15 = P 6,280.46 (1.07 / / then press 15 times)
b) P41,517 x 1.11 ^ -8 = P18,015.33
c) P790,382 x 1.10 ^ - 13 = P228,945.51
d) P647,816 x 1.13 ^ - 25 = P30,513.40
4.

a) P1,381 / 715 = 1.93

Trial and Error

Starts at 10 percent; 11 years

10% = 2.8531
9% = 2.5804
8% = 2.3316
7% = 2.1048
6% = 1.8983

7% = 2.1048 = 0.1748
1.93
6% = 1.8983 = 0.0317
0.2065 0.2065

7% - 0.1748/ 0.2065 = 6.15%

6% + 0.0317 / 0.2065 = 6.15%

b) P1,718 / 905 = 1.8983

Trial and Error

Start at 10 percent; 8 years

10% = 2.1435
9% = 1.9926
8% = 1.8509

9% = 1.9926 = 0.0943
1.8983
8% = 1.8983 = 0.0474
0.1417 0.1417

9% - 0.0943/ 0.1417 = 8.33%

8% + 0.0474/ 0.1417 = 8.33%

5.
a) P873 / 195 = 4.4769

1.09^? = press lang ng press ng = until makuha ung 4.4769

After, iless ng 1 yr yung no. of yr divide by 1.09
18 yrs – 1 yr = 17 yrs
17 yrs = 4.4769/1.09
Always start at 10% when computing for assumption (same as above in real interest)

Trial and Error using 9%

18 years = 4.7171 = 0.2402

4.4769
17 years = 4.3276 = 0.1493
0.3895 0.3895

18 – 0.2402 / 0.3895 = 17.38 years

17 + 0.1493/ 0.3895 = 17.38 years (Always with decimals pa rin)

b) 3500 / 2105 = 1.6627

Trial and Error using 7%

8 years = 1.7182 = 0.0555

1.6627
7 years = 1.6058 = 0.0569
0.1124 0.1124

8 years – 0.0555/0.1124 = 7.51 years

7 years + 0.0569 / 0.1124 = 7.51 years