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Solved Problems in Compound Interest

The document provides examples of solving compound interest problems. It gives 10 problems calculating future values, interest rates, present values, and time periods for money invested or deposited at given annual or quarterly compound interest rates. The solutions show using the compound interest formula and performing the calculations to determine the unknown values in each problem.

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jaine ylevreb
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19K views

Solved Problems in Compound Interest

The document provides examples of solving compound interest problems. It gives 10 problems calculating future values, interest rates, present values, and time periods for money invested or deposited at given annual or quarterly compound interest rates. The solutions show using the compound interest formula and performing the calculations to determine the unknown values in each problem.

Uploaded by

jaine ylevreb
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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SOLVED PROBLEMS IN COMPOUND INTEREST

COMPOUND INTEREST

PROBLEM 1

HOW MUCH SHOULD YOU PUT INTO A 20% SAVINGS ACCOUNT IN ORDER TO HAVE P50,000 IN FIVE YEARS?

SOLUTION:

𝐴 = 𝑃(1 + 𝑖)𝑛

50000 = 𝑃(1.20)5

𝑃 = 𝑃20093.88

PROBLEM 2

HOW LONG WILL IT TAKE MONEY TO DOUBLE ITSELF IF INVESTED AT 10% COMPOUNDED ANNUALLY ?

SOLUTION:
𝐴 = 𝑃(1 + 𝑖)𝑛
2𝑃 = 𝑃(1.1)𝑛
𝑙𝑜𝑔2 = 𝑛𝑙𝑜𝑔1.1
𝑙𝑜𝑔2
𝑛=
𝑙𝑜𝑔1.1
𝑛 = 7.27𝑠𝑎𝑦 7 𝑦𝑒𝑎𝑟𝑠

PROBLEM 3

THE AMOUNT OF P100,000 WAS DEPOSIT IN THE BANK EARNING AN INTEREST OF 7.5% PER ANNUM .
DETERMINE THE TOTAL AMOUNT AT THE END OF 5 YEARS, IF THE PRINCIPAL AND INTEREST WERE NOT
WITHDRAWN DURING THE PERIOD ?

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
𝐹 = 100,000(1.075)5
𝐹 = 𝑃143,562.93
PROBLEM 4

FIND THE PRESENT WORTH OF A FUTURE PAYMENTS OF P70,000 TO BE MADE IN 10 YEARS WITH AN INTEREST
OF 12% COMPOUNDED QUARTERLY .

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
0.12 40
70,000 = 𝑃 (1 + )
4
𝑃 = 𝑃21458.98

PROBLEM 5

IF P50000.00 SHALL ACCUMULATE FOR 10 YEARS AT 8% COMPOUNDED QUARTERLY . FIND THE COMPOUNDED
INTEREST AT THE END OF 10 YEARS.

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
0.08 40
𝐹 = 50000 (1 + )
4
𝐹 = 110,402
𝐼 =𝐹−𝑃
𝐼 = 110,402 − 50000
𝐼 = 𝑃60,402

PROBLEM 6

P2,500.00 WAS DEPOSITED IN A BANK ACCOUNT , 10 YEARS AGO. TODAY IT IS WORTH P5,000.00. INTEREST
IS PAID SEMI - ANNUALLY . D ETERMINE THE INTEREST RATE PAID ON THIS ACCOUNT ?

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
𝑖 20
5,000 = 1,500 (1 + )
2
𝑖 20
2 = (1 + )
2
𝑖
1 + = 1.03526
2
𝑖 = 0.07 = 7%
PROBLEM 7

A MERCHANT PUTS IN HIS P3,000.00 TO A SMALL BUSINESS FOR A PERIOD OF SIX YEARS. WITH A GIVEN
INTEREST RATE ON THE INVESTMENT OF 20% PER YEAR , COMPOUNDED ANNUALLY , HOW MUCH WILL HE
COLLECT AT THE END OF THE SIXTH YEAR ?

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
𝐹 = 3000(1 + 0.20)6
𝐹 = 𝑃8957.95

PROBLEM 8

A MAN EXPECTS TO RECEIVE P20,000 IN 8 YEARS. HOW MUCH IS THAT MONEY WORTH NOW CONSIDERING
INTEREST AT 10% COMPOUNDED QUARTERLY ?

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
0.10 8(4)
20000 = 𝑃 (1 + )
4
𝑃 = 𝑃9075.41

PROBLEM 9

AT AN INTEREST RATE OF 5% COMPOUNDED ANNUALLY , HOW MUCH WILL A DEPOSIT OF P2000 BE IN 15


YEARS.

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
𝐹 = 2000(1.05)15
𝐹 = 𝑃4157.86

PROBLEM 10

HOW MANY YEARS WILL P50,000 EARNED A COMPOUND INTEREST OF P10000 IF THE INTEREST RATE IS 10%
COMPOUNDED QUARTERLY ?

SOLUTION:
𝐹 = 𝑃(1 + 𝑖)𝑛
𝐹 =𝑃+𝐼
𝐹 = 50000 + 10000 = 60000
60000 = 50000(1.025)𝑛
𝑛𝑙𝑜𝑔1.025 = 𝑙𝑜𝑔1.2
𝑛 = 7.38
4𝑥 = 7.38

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