COMPOUND

INTEREST
Key Terms, Formulas, and Applications
 COMPOUND INTEREST

› What is the main purpose of a bank?

BORROW SAVE
LOAN DEPOSIT
CONCEPT OF COMPOUND INTEREST
PRE-REQUISITE:

A Php 15,000 loan at 8% annual interest for 2

years. Compare the simple and compound
interest.
SIMPLE VS COMPOUND INTEREST
SIMPLE INTEREST COMPOUND INTEREST

Is computed based on ORIGINAL PRINCIPAL. Is computed based on ACCRUED PRINCIPAL.

Amount of interest is CONSTANT for every Amount of interest is NOT CONSTANT for
interest period. every compounding period.

LOWER HIGHER

F = P(1 + RT)
COMPOUND INTEREST (Ic) FORMULA

Ic = F − P

Compound Maturity Principal

Interest Value
 MATURITY VALUE (F) FORMULA

( )
n
r
F = P 1+
m
WHERE:
Interest Period (per year) m
F = Compound Amount or Maturity Value
P = Present Value Monthly 12

r = Rate of Interest Quarterly 4

m = Number of Interest Period in One year
Semi-Annual 2
n=mxt
t = time, in years Annually 1
 PRESENT VALUE (P) FORMULA

( )
−n
r
P = F 1+
m
WHERE:
Interest Period (per year) m
F = Compound Amount or Maturity Value
P = Present Value Monthly 12

r = Rate of Interest Quarterly 4

m = Number of Interest Period in One year
Semi-Annual 2
n=mxt
t = time, in years Annually 1
 TIME (t) and RATE (r) FORMULA
log ( F ÷ P )
t =
m log 1+
r
m ( )

(√ )
WHERE:

F
F = Compound Amount or Maturity Value
P = Present Value
n
r = Rate of Interest
r=m −1
P
m = Number of Interest Period in One year
n=mxt
t = time, in years
 WHERE:

FORMULAS
Interest Period
F = Compound Amount or Maturity m
(per year)
Value

Compound Interest Formula: P = Present Value Monthly 12

r = Rate of Interest
Quarterly 4
m = Number of Interest Period in
One year
Semi-Annual 2
n=mxt
Where: Ic = Compound Interest t = time, in years Annually 1

P = Principal
Illustrative Examples
F = Maturity Value
1. Find the compound amount and the
Maturity Value Formula:
interest if Php 50, 600 is invested at 9%
compounded quarterly for 3 years and 3
months.
 WHERE:

FORMULAS
Interest Period
F = Compound Amount or Maturity m
(per year)
Value

Compound Interest Formula: P = Present Value Monthly 12

r = Rate of Interest
Quarterly 4
m = Number of Interest Period in
One year
Semi-Annual 2
n=mxt
Where: Ic = Compound Interest t = time, in years Annually 1

P = Principal
Illustrative Examples
F = Maturity Value
2. Find the compounded interest of Php
Maturity Value Formula:
60,800 for 4 years and 6 months at 6%
converted semi-annually.
 WHERE:

FORMULAS
Interest Period
F = Compound Amount or Maturity m
(per year)
Value

Compound Interest Formula: P = Present Value Monthly 12

r = Rate of Interest
Quarterly 4
m = Number of Interest Period in
One year
Semi-Annual 2
n=mxt
Where: Ic = Compound Interest t = time, in years Annually 1

P = Principal
Illustrative Examples
F = Maturity Value
3. An obligation of Php 156,000 is due on
Present Value Formula:
January 14, 2015. What is the present
value on October 14, 2008 at 5%
compouned quarterly?
 WHERE:

FORMULAS
Interest Period
F = Compound Amount or Maturity m
(per year)
Value

Compound Interest Formula: P = Present Value Monthly 12

r = Rate of Interest
Quarterly 4
m = Number of Interest Period in
One year
Semi-Annual 2
n=mxt
Where: Ic = Compound Interest t = time, in years Annually 1

P = Principal
Illustrative Examples
F = Maturity Value
4. What was the original amount invested
Present Value Formula:
7 years ago at 7% if the maturity value is
Php 550,000 compounded semi-
annually?
 WHERE:

FORMULAS
Interest Period
F = Compound Amount or Maturity m
(per year)
Value

Compound Interest Formula: P = Present Value Monthly 12

r = Rate of Interest
Quarterly 4
m = Number of Interest Period in
One year
Semi-Annual 2
n=mxt
Where: Ic = Compound Interest t = time, in years Annually 1

P = Principal
Illustrative Examples
F = Maturity Value
5. How long will Php 75,000 takes to
Time Formula:
amount to Php 96,000, if the interest is
7% semi-annually?
 WHERE:

FORMULAS
Interest Period
F = Compound Amount or Maturity m
(per year)
Value

Compound Interest Formula: P = Present Value Monthly 12

r = Rate of Interest
Quarterly 4
m = Number of Interest Period in
One year
Semi-Annual 2
n=mxt
Where: Ic = Compound Interest t = time, in years Annually 1

P = Principal
Illustrative Examples
F = Maturity Value
6. When does Php 80,000 due if the
Time Formula:
present value of Php 38,000 is deposited
in an investment firm at 8% compounded
monthly?
 WHERE:

FORMULAS
Interest Period
F = Compound Amount or Maturity m
(per year)
Value

Compound Interest Formula: P = Present Value Monthly 12

r = Rate of Interest
Quarterly 4
m = Number of Interest Period in
One year
Semi-Annual 2
n=mxt
Where: Ic = Compound Interest t = time, in years Annually 1

P = Principal
Illustrative Examples
F = Maturity Value
7. Find the rate compounded quarterly if
Rate Formula:
Php 3,500 accumulates to Php 15,800 in
5 years.