Compound-Interest
Compound-Interest
Compound-Interest
The basic concepts of maturity value of money, future value, present value, and
equivalent payments that were developed in a simple interest context, have similar
interpretations and significance in a compound interest environment.
The principle of compound interest is applied in long-term loans. Banks and other
financial institutions generally pay compound interest on deposits in a savings account to
encourage their depositors to invest and accumulate for a long period of time.
Nominal Interest
- is the stated annual interest rate on which the compound interest calculations is
based.
Periodic Interest rate
- is the rate of of interest earned in one conversion period.
Example 1: Alma puts 100,000 in a saving account paying 8% annual interest compound
monthly. At this rate, how much money will be in the account after 4 years?
Solution:
Given: P= 100,000 r=(8%)0.08 m=12 (the annual interest) t=4 F=?
Example 2: Find the maturity value and interest if 10,000 is deposited in a bank at 4%
rate compounded monthly for 4 years?
Solution:
Given: P=10,000 r=4% (0.04) m=12 t=4
Example 3: Find the interest earned at the end of 4 years if 36,700 pesos is invested at
12% compounded bimonthly.
Solution:
Direction:Write your answer in 1/2 crosswise and answer directly. Put your class
schedule and the date for today, as this will serve as your attendance. Assigned
someone to collect and put on my table in CTEd Bldg.Faculty Room 1. Enjoy answering
and DON’T FORGET TO SMILE :)
1. What will be the maturity value of 12,000 pesos invested for 4 years at 15%
compounded quarterly?
2. Salome paid 8,600 pesos on a loan made 2 years before 6% compounded bimonthly.
Find the interest generated.
Clue: begin by solving the value of P(Principal)
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