1.

A friend of yours borrowed P5,000 at 5% interest provided that she pays you back the
P5,000 plus interest after 4 years. How much should you receive from her?
- I should receive P6,000 from my friend.
Solution:
Formula: P x i x n
= 5000 x 0.05 x 4
= 5000 x 0.2
= P1,000 (Interest)
= P5,000 + P1000 = P6,000

2. You borrowed P1,500,000 from the bank and you agree to pay off the loan after 5
years from now and during that period you paid 13% interest on the loan. How much
interest did you pay for the money that you borrowed?
- I paid P975,000 interest after 5 years from the amount I borrowed.
Solution:
Formula: P x i x n
= 1,500,000 x 0.13 x 5
= 1,500,000 x 0.65
= P975,000 (Interest)

3. Using the figures in no. 2, what would be the interest in pesos if the interest charge to
you was compounded yearly?
- The interest charged if it would be compounded yearly would be P1,263,652.769 or
P2,763,652.769 in total.
Solution:
Formula: FVn= PV (1+i) ^n
= 1,500,000 (1+0.13) ^5
= 1,500,000(1.13) ^5
= 1,500,000 (1.842435179)
= P 2,763,652.769 – 1,500,000
= P1,263,652.769 (Interest)

4. Now let’s assume you were enticed to invest P1,500,000 with 13% interest per annum.
How much will you receive in 5 years?
After my investment in 5 years, I would receive P2,763,652.769 interest or a total of
P4,263,652.76895 ROI.
Solution:
Formula: FV= PV(1+i/n) ^nt
= 1,500,000(1+0.13/1) ^1x5
=1,500,000(1.013) ^5
=1,500,000(1.842435179)
 = P2,763,652. 76895
= P2,763,652. 76895+ P1,500,000
= 4,263,652.76895 total ROI in 5 years.

5. Compute the future value of P6,000 compounded annual for

Formula for a-c: FV= PV(1+i) ^n
a. 5 years at 5%
= 6,000 (1+0.05) ^5
= 6,000 (1.05) ^5
= 6,000 (1.276281563)
= P7,657.689375 or P7,657.689
b. 5 years at 8%
= 6,000 (1+0.08) ^5
= 6,000 (1.08) ^5
= 6,000 (1.469328077)
= P8,815.9684608 or P8,815.968
c. 10 years at 5%
= 6,000 (1+0.05) ^10
= 6,000 (1.05) ^10
= 6,000 (1.628894627)
= P9,773.367761 or P9,773.368
d. Why is th1e interest earned in letter “c” not twice the amount earned in letter “a”?
- In the case “c” there is a longer time for the interest to compound, increasing its future
value however, it is not double as scenario “a” because the time period is different with
a same interest value.

6. Let’s say your friend wish to have P3,000,000 saved by the end of six years. Suppose
that he deposited this money today in an account that pays 6% interest, compounded
annually. How much must your friend deposit today to meet her goal?
- My friend should initially deposit P2,114,881.621 today to meet her goal.
Solution:
Formula: PV = FVn(1+i) ^n
= 3,000,000 / (1+0.06) ^6
= 3,000,000 / (1.06) ^6
= 3,000,000 / (1.418519112256)
= P2,114,881.62131903 or P2,114,881.621
7. How much would you have to deposit today in an account that pays 7% annual
interest, compounded quarterly, if you wish to have a balance of P100,000 at the end
of 10 years?
- I should deposit P49,960.098 if I wish to have a balance of P100,000 at the end of 10
years.
Solution:
Formula: PV = FVn(1+i/n) ^nt
= 100,000 / (1+0.07/4) ^10x4
= 100,000 / (1+0.0175) ^10x4
= 100,000 / (1.0175) ^40
= 100,000 (2.001597343286031)
= P49,960.09828871257 or P49,960.098

8. Suppose you have two investment opportunities that promise P5,000,000 in 20 years.
Investment Bank 1: A return of 6% per year compounded monthly
Investment Bank 2: A return of 4.6% per year, compounded quarterly
Which bank will you invest your money?
- I would invest my money at Investment Bank 1 with a return of 6% per year
compounded monthly because it requires a lower investment of P1,510,480.708 in
achieving the future value, P5,000,000.
Solution:
Formula for Bank 1 & 2: PV = FVn(1+i/n) ^nt

Investment Bank 1
= 5,000,000 / (1+0.06/12) ^12x20
= 5,000,000 / (1.005) ^240
= 5,000,000 / 3.310204475807448
= P1,510,480.707926771 or P1,510,480.708

Investment Bank 2
= 5,000,000 / (1+0.046/4) ^4x20
= 5,000,000 / (1+0.046/4) ^4x20
= 5,000,000 / (1.0115) ^80
= 5,000,000 / (2.496151660433847)
= P2,003,083.418068824 or P2,003,083.418