Have a Good
Day!
1
S E C O N D Q U A R T E R (F I
N A L)
Chapter 6: Simple and
Compound Interest
Lesson 25: Compound
Interest
Lesson Topics:
[Link] maturity value
[Link] present value
PREREQUISITE SKILLS:
Knowledge in Simple Interests,
Exponentials Functions
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INTRODUCTION
Situation No. 1:
Ella and Thelma invest ₱10,000 for two
years, but under different schemes.
Ella’s earns 2% of ₱10,000 the first year,
which is ₱200, then another ₱ 200 the
second year. Thelma earns 2% of
₱10,000 the first year, which is ₱200,
same as Ella’s. But during the second
year, she earns 2% of the ₱10,000 and
What
2% are₱200
of the the amount
also. of Ella’s and Thelma’s
respective account after two years?
Why there is a difference?
LESSON: Many banks
savings pay compound
interest. In this case, the
interest is added to the
account at regular
intervals, and the sum
becomes the new basis for
computing interest. Thus,
the interest earned at a
certain time is
Compound Interest
Example of a Compound
Interest
Principal = P Principal = ₱100,000
Interest rate = Interest rate = 5%,
r, compounded compounded annually
Year (t)
annually
Amount at the Amount at the end of
end of the the year
year
1 P(1+r) = (100,000)(1.05) =
P(1+r) 105,000
OBSERVATION: Observe that the amount at
the end of each year is just the amount from
the previous year multiplied by (1+r). In other
words, 1+r is multiplied each time the year
ends. This results in the following formula for
the amount after t years, given an annual
interest (Future)
Maturity rate of r:Value and Compound
Interest t
F = P(1+r)
Where: F = maturity (future) value at
the end of the term
P = principal or present value
r = interest rate
t = term / time in years
The compound interest Is is given by
Example 1. Find the maturity value and the
compound interest if ₱10,000 is compounded
annually at an interest rate of 2% in 5 years.
Given:
P= 10,000 r= 2% = 0.02 t=5
years
Find: (a) maturity value F
(b) Compound Interest Ic
t
Solution:
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a) F=P(1+r)
F= (10,000) (1+.02)
F= 11,040.081
b) Ic = F - P
Ic= 11,040.81 – 10,000
Ic=1,040.81
Example 2. Find the maturity value and interest
if ₱50,000 is invested at 5% compounded
annually for 8 years.
Given:
P= 50,000 r= 5% = 0.05 t=8
years
Find: (a) maturity value F
(b) Compound Interest Ic
t
Solution:
a) F=P(1+r) 8
F= (50,000) (1+.05)
F= 73,872.77
b) Ic = F - P
Ic= 73,872.77 – 50,000
Ic=23,872.77
Answer: The future value F is ₱73,872.77 and the
Example 3. Suppose your father deposited in
your bank account ₱10,000 at an annual
interest rate of 0.5% compounded yearly when
you graduate from kindergarten and did not get
the amount until you finish Grade 12. how much
will you have in your bank account after 12
Given:
years?
P= 10,000 r= 0.5% = 0.005 t = 12
years
Find: Find maturity value F
Solution: t
F=P(1+r) 1
2
F= (10,000) (1+.0050)
F= 10,616.77
Answer: The amount will become ₱10,616.77 after 12 years.
It is advisable to save all your money in an
account that earns only 0.5% interest?
The present value or principal of the
maturity value F due in t years any rate r
can be obtained from thet maturity value
formula F=P(1+r)
Solving for the tpresent value P,
t
P(1+r) = F
t
t =
t
P=
or equivalent,
-t P=
F(1+r)
Present Value P at Compound Interest
-t
P
t = = F(1+r)
P=principal
F=maturity (future) value at10the end of term
R=interest rate t= term/time in years
Example 4. What is the present value of
₱50,000 due in 7 years if money is worth 10%
compounded annually?
Given:
F= 50,000 r= 10% = 0.1 t=7
years
Find: P
Solution: the present value P can be
t
obtained by
P=
7
P=
P= 25,657.91
Answer: The present value is ₱25,657.91
Example 5. How much money should a student
place in a time deposit in a bank that pays 1.1%
compounded annually so that he will have ₱
200,000 after 6 years?
Solution.
Given:
F= 200,000 r= 1.1% = 0.011 t=6
years
Find: P
Solution: the present value P can be
t
obtained by
P=
6
P=
P= 187,293.65
Answer: The should deposit ₱187,293.65 in the bank.
THEOREM and DEFINITION OF EXPONENTS
Definition
Let a
(1) a⁰ = 1
(2) a⁻ⁿ =
Theorem.
Let r and s be rational numbers. Then
(1) =
(2) =
(3) =
(4) =
(5) =
LAW OF LOGARITHMS
Let b > 0, b
(1) (uv) = u + v
(2) () = u - v
(3) = nu
Law of Logarithms Examples
(uv) = u + v (7³.7⁸) = +
(27.81) = 27 +
() = u - v () = -
() = -
= nu =
Seat work: Compound Interest
Time Frame: 15 minutes
Note: Use Yellow paper in submitting
seatwork.
Evaluation 1. Find the unknown principal P, rate
r, time t, and compound interest Ic by
completing the table.
Princi Rat Tim Inter Maturity
pal (P) e (r) e est value (F)
(t) (I)
10,000 8% 15 (1) (2)
3,000 5% 6 (3) (4)
50,000 10% 10 (5) (6)
(7) 2% 5 (8) 50,000
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Home work: Compound Interest
Time Frame: 15 minutes, Note: Use Yellow paper in
Home work
submitting 1.
seatwork. Solve the following
problems.
(a) What are the amounts of interest and
maturity value of a loan for ₱20,000 at 6%
compound
(b) In orderinterest
to havefor 3 years?
₱50,000 in 5 years, how
much should you invest if the compound interest
(c) A savings
is 5% ? account in a bank yields 0.25%
compound interest annually. Accumulate (find the
future value of) ₱25,000 for 4 years in this
savings account. How much interest will she
(d) In a certain bank, Angel invested ₱88,000 in a
gain?
time deposit that pays 0.5% compound interest in
a year. How much will be her money for 6 years?
How much interest will she gain?
(e) On the 7th birthday of her daughter, Shirlee
deposited an amount in a bank peso bond fund
that pays 1.0% interest compounded annually.
How much should she deposit16
if she wants to
th
End of
“TheLesson
great man is 25
he that
does not lose his child’s-
heart. ”
—MENCIUS
THANK
YOU!
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