COMPOUND

INTEREST
PREPARED BY: MR. JERRY MAE A. RANES
LESSON OUTLINE
1. Compute compound interest
2. Compute maturity value and present
value in compound interest
 MATURITY (FUTURE) VALUE
𝑡
𝐹 =𝑃 1+𝑟

Where: 𝐹 = maturity value

𝑃 = principal amount
𝑟 = interest rate
𝑡 = time or term in years
 COMPOUND INTEREST
𝐼𝑐 = 𝐹 − 𝑃
𝐼𝑐 = 𝑃 1 + 𝑟 𝑡 − 1

Where: 𝐼𝑐 = compound interest

𝐹 = maturity value
𝑃 = principal amount
𝑟 = interest rate
𝑡 = time or term in years
 EXAMPLE #1
Find the maturity value and the compound interest if
P10,000 is compounded annually at an interest rate of 2% in
5 years.

Answer: The future value is P11,040.81 and the compound

interest is P1,040.81.
 EXAMPLE #2
Find the maturity value and interest if P50,000 is invested at
5% compounded annually for 8 years.

Answer: The maturity value is P73,872.77 and the

compound interest is P23,872.77.
 EXAMPLE #3
Suppose your father deposited in your bank account
P10,000 at an annual interest rate of 0.5% compounded
yearly when you graduate from kindergarten and did not get
the amount until you finish Grade 12. How much will you have
in your bank account after 12 years?

Answer: The amount will become P10,616.77 after 12 years.

 PRESENT VALUE
AT COMPOUND INTEREST
𝐹 −𝑡
𝑃= 𝑡
=𝐹 1+𝑟
1+𝑟

Where: 𝐹 = maturity value

𝑃 = principal amount
𝑟 = interest rate
𝑡 = time or term in years
 EXAMPLE #4
What is the present value of P50,000 due in 7 years if money
is worth 10% compounded annually?

Answer: The present value is P25,657.91.

 EXAMPLE #5
How much money should a student place in a time deposit in
a bank that pays 1.1% compounded annually so that he will
have P200,000 after 6 years?

Answer: The student should deposit P187,293.65 in the

bank.
 EXAMPLE #6
Find the unknown principal, rate, time, and compound
interest by completing the table.
Compound Maturity
Principal Rate Time
Interest Value
6,200 8% 12 (1) (2)
12,000 5.5% 6 years and 9 months (3) (4)
60,000 9.75% 10 months (5) (6)
(7) 1% 6 (8) 25,000
(9) 7.5% 4 years and 6 months (10) 400,000
 EXAMPLE #6
Find the unknown principal, rate, time, and compound
interest by completing the table.
Compound Maturity
Principal Rate Time
Interest Value
6,200 8% 12 9,412.65 15,612.65
12,000 5.5% 6 years and 9 months 5,224.05 17,224.05
60,000 9.75% 10 months 4,836.82 64,836.82
23,551.13 1% 6 1,448.87 25,000
288,882.94 7.5% 4 years and 6 months 111,117.06 400,000