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Compound Interest Exercise 3

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Mark Angelo B. Rentoy
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25 views

Compound Interest Exercise 3

yes

Uploaded by

Mark Angelo B. Rentoy
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Name: Mark Angelo B.

Rentoy Section: AMN1 Date: March 19, 2024

Compound Interest Exercise 3

1. An investment with a term of 3 years, nominal rate 13%, compounded annually. What is the rate per
period?
Ans: 13%
2. A principal of P30,000 with a compound amount of P46,800, Interest rate 18%, compounded
monthly. Solve for the number of compounding periods.
Ans: 29.87 = log(46,800/30,000) / log(1+(18%/12))

3. An investment of P100,000 for 1 year with 12% nominal interest compounded quarterly. The
compound interest will be _______.
Ans: A = 100,000 (1 + 3%)^4
A = 112,550.88

I = 112,550 - 100,000
I = 12,550.88

4. If P20,000 is invested now, find the amount at the end of 2 year and 8 months if interest is 18%
compounded every two months.
Ans: A = 20,000 (1 + 3%)^16
A = 32,094.13

5. What is the compound amount of P300,000 invested at 6% compounded quarterly for 27 months?
A = 300,000 (1 + 1.5%)^9
A = 343,016.99

6. Edward wants to renovate his house in 3 years. He estimates the cost to be P300,000. How much
must Edward invest now at 8% interest compounded quarterly, in order to have P300,000, 3 years
from now?
P = 300,000 (1 + 2%)^12
P = 236,547.90

7. Margo is planning a vacation in France in 4 years after graduation. She estimates that she will need
P350,000 for the trip. If her bank is offering 4-year certificate of deposit with 8% interest
compounded quarterly, how much must Margo invest now in order to have money for the trip?
P = 350,000 (1 + 2%)^12
P = 254,956.10

8. Determine the amount that would accumulate if P10,000 is invested for 2 years at 16% compounded
semi-annually, then reinvested at 20%, compounded quarterly for 3 more years.
1st A = 10,000 (1 + 8%)^4
A = 13,604.89
2nd A = 13,604.89 (1 + 5%)^12
A = 24,432.43

9. Determine the amount that must be invested today for 30 months at 12%, compounded
semiannually, then reinvested at 16% per annum compounded quarterly, for 3 years and 9 months
more to equal P50,000.
2nd P = 50,000 (1 + 4%)^15
P = 27,763.23
1st P = 27,763.23 (1 + 6%)^5
P = 20,746.23

10. At what rate, converted semi-annually is P8,960 the present value of P41,170.96 which is due in 8
years?
I = 16 (41,170.96/8,960) - 1
I = 4.88% or 5%
nominal rate = 9.76% or 10%
11. Find the annual rate of interest if an investment increases 75% in 10 years.
I = nv(A/P) - 1
I = 175,000/100,000 = 1.75)
I = 10v(1.75) - 1
I = 5.75%

12. One investment pays 8% annual interest. Another investment accumulates P4,000 to P6,200 in 7
years. Which of the two gives higher annual income? Why?
I = 7v(6,200/4,000) - 1
I = 6.46%
First investment option with interest of 8% is higher than the second option
with 6.48%

13. P4,500 is invested at 12% compounded semi-annually. After how many months will it accumulate to
P5,360?
n = log(5,360/4,500) / log(1 + 6%)
n = 3 periods 2 x 12
no. of months = 3 periods x 6 months per period
= 18 months

14. How many years will it take for money to double itself at 16% compounded semi-annually?
n = log(A/P) / log(1+I)
Use any Compound and Principal amount that doubled its amount (i.e.
200,000/100,000 = 2)
n = log(2) / log(1+8%)
n = 9 periods
no. of years = 9 periods / 2
= 4.5 years

15. How long will P4,000 settle a loan of 2,800 if interest is computed at 10% compounded quarterly?
(Express answer in years)

n = log(4,000/2,800) / log(1+2.5%)

n = 14.44 periods

no. of years = 14.44 periods / 4 (quarterly)

= 3.61 years

= 43.32 months

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