Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

OFFICE OF THE VICE PRESIDENT FOR BRANCHES AND CAMPUSES
MARAGONDON BRANCH

Business Mathematics
COMPOUND DISCOUNT
and its Application

Inst. Mariz N. Lansak ll mn

 Compound Interest
•• Example:
  If money can be invested at 5% converted quarterly, find the present value of ₱ 5,600.00
due at the end of 3 years and 9 months.

Given: Solution:
F= 5,600   P
 
P= ?
  =   5% = 0.055
P = 4,562.73
m= quarterly = 4
t = 3 yrs, 9 mos.   =

n = t x m   = (4) = 15
 j =  
= = 0.01375
 Compound Discount
• Example:. Discount ₱3,700.00 for 2 years and 10 months at 5% compounded semi-
annually.
Given: Solution:
F= 3,700   P
 
P= ?
d =  5% = 0.05
P = 3,216.87
m= Semi-annually = 2
t = 2 yrs, 10 mos.   =

n = t x m   = (2)   =

 j =   = = 0.025
Nominal and Effective
Rates
Nominal and Effective Rate
 Nominal and Effective Rate

 • Example1. What nominal rate compounded monthly, will yield the effective rate of 3 %
Solution:
Given:
  j
e=   3 = 0.035  

m= 12
j = 0.345 or 3.45%
Nominal and Effective Rate

• Example2. If interest is compounded quarterly, find the nominal rate if the effective
rate is 10%.
Solution:
Given:
10%
  j
e= = 0.10
 

m= 4
j = 0.0965 or 9.65%
 Nominal and Effective Rate

 • Example3. Find the effective rate corresponding to the rate 5% compounded quarterly
Solution:
Given:
  e
j=   5% = 0.055
 

m= 4
e = 0.0561 or 5.61%
Nominal and Effective Rate

 • Example3. When interest is compounded monthly, find the effective rate corresponding to the
nominal rate 3%.
Solution:
Given:
  e
j=   3% = 0.035
 

m= 12
e = 0.0356 or 3.56%
Equivalent
Rates
Equivalent Rates –Compound Interest
 Equivalent Rates –Compound Interest
• Example 1. What rate compounded semiannually is equivalent to 5%
compounded monthly?
Given: Solution:
me= 2   eq
g= 5% = 0.05  
m = 12

eq = 0.0505 or 5.05%
 Equivalent Rates –Compound Interest
• Example
  2. What rate converted monthly is equivalent to 4% converted quarterly?

Given: Solution:
me= 12   eq
g=   4% = 0.045  
m= 4

eq = 0.0448 or 4.48%
Equivalent Rates –Simple Interest
 Equivalent Rates –Simple Interest
• Example 1. What simple interest rate is equivalent to 6% compounded quarterly, if
money is invested for 9 years and 9 months?
Given: Solution:
  = 6% = 0.06   r
m= 4
 𝒓 𝒈    
i= = = 0.015
𝒎
t = 9 yrs and 9 mos   =
n= t x m   = x4
= 39 r = 0.0807 or 8.07%
 Equivalent Rates –Simple Interest
• Example 2. If money is invested for 5 years, what simple interest rate is equivalent
to 8% compounded monthly?
Given: Solution:
  = 8% = 0.08   r
m= 12
 𝒓 𝒈    
i= =
𝒎 = 0.00667
t = 5 yrs
n= t x m = 5 x 4 = 20 r = 0.098 or 9.8%
Equation
of Values
Equation of Values

Obligations =   F   + P
Equation of Values

Obligations =   F   + P
  = 30,000   + 20,000
= 35,149.78 + 15,769.86
= 50,919.64