Compound Interest

Compound Interest
• Compound interest – a type of interest which
results from the periodic addition of simple
interest to the principal
• This type of interest often applies to savings
accounts, loans, and credit cards.
• Compound amount – the amount at the end
of the term (after several compounding)
• It is the sum of the original principal and its
compound interest.

Compound Interest
• Formula for the compound amount F:

F  P(1 i) n

P - original principal
j - rate
 of interest per year
m - frequency of conversion
j
i - interest rate per priod; i  m

t - length of term in years

n - total number of conversion periods;n  tm

Compound Interest
 Example. Find the compound amount at the end
of 12 periods if the principal is Php25,000 and
the interest per period is 10%.

F  P(1 i) n
 25,000(1 .10) 12

F  Php78,460.71



Compound Interest
 Example. What is the maturity value of a
75,000-peso, three-year investment earning
5% compounded monthly?

F  P(1 i) n

 75,0001 
36
.05
12

 F  Php87,110.42

 Do this if i is not exact.

Compound Interest
 Example. Find the compound amount after 5
years and 9 months if the principal is
Php150,000 and the rate is 7% compounded
annually.

F  P(1 i) n
9
5 12 1
 150,000(1.07)
 Php221,333.92


 Compound Interest
More Formulas:

P  F(1 i) n

 1

F
j  m    1

n

 P  
 

logFP 
n
log(1 i)

Compound Interest
 Given P = Php25,200, i = 3%, n = 16, find F.

F  P(1 i) n
 25,200(1.03)16
 Php40,438.60




Compound Interest
 Given P = Php1.8M, j = 11%, t = 7.5 years,
m = 2, find F.

F  P(1 i) n
 1,800,000(1.055)15
 Php4,018,457.69




Compound Interest
 Given F = Php46,000, j = 12%, t = 6.25 years,
m = 12, find P.

n
P  F(1 i)
75
 46,000(1.01)
 Php21,809.96




Compound Interest
Given F = Php56,471.27, P = Php25,000,
t = 8 years 3 months, m = 4, find j.

 1
  1

F  56,471.27 
j  m    1
   1
n 33
4 
 P    25,000  
   
10%


Compound Interest
Given F = Php34,500, P = Php30,000,
j = 15%, m = 12, find n.

log FP  log30 , 000 

34 , 500
n  11.25 periods
log(1  i ) log(1.0125)



Compound Interest
Given F = Php72,157.25, P = Php48,200,
j = 9%, m = 12, find n.

logFP  log72,157.25
48,200 
n   54 periods
log(1 i) log(1.0075)




Compound Interest
 Find the compound amount due in 6 years and 2
months if Php350,000 is invested at 12%
compounded monthly.

F  P(1 i) n
 350,000(1.01) 74
 Php730,886.10



Compound Interest