EECO101

ENGINEERING ECONOMY
Compound
Interest
(Examples)
Compute the amount (F) or maturity value of a note at the end of 3 years, if
the principal (P) or face value is P80,000 and the interest rate (r) is 6%
compounded semi-annually.
𝑡 = 3 𝑦𝑒𝑎𝑟𝑠 𝑛
𝐹 =𝑃 1+𝑖
𝑃 = 𝑃80,000 6%
𝑖= = 3%
2
𝑟 = 6%
𝑛=3 2 =6
𝑚=2

6
𝐹 = 𝑃80,000 1 + 0.03

F = P95,524.18
On January 11, 2017, a man borrowed P150, 000 and promised to pay the principal and
interest at 9% compounded quarterly on October 11, 2020. How much will he pay?

𝑃 = 𝑃150,000 𝑛
𝐹 =𝑃 1+𝑖
𝑟 = 9%
9%
𝑚=4 𝑖= = 2.25%
4
𝑡 = 3 𝑦𝑟𝑠 & 9 𝑚𝑜𝑠
9
𝑛= 3 4 = 15
12

15
𝐹 = 𝑃150,000 1 + 0.0225

F = P209,431.02
Find the compound amount and interest if P5,500 is invested at 8% compounded
quarterly for 5 years and 6 months.

𝑃 = 𝑃5,500 𝑛
𝐹 =𝑃 1+𝑖 𝐼 =𝐹−𝑃
𝑟 = 8%
8%
𝑚=4 𝑖= = 2%
4 I = P3,002.89
𝑡 = 5 𝑦𝑟𝑠 & 6 𝑚𝑜𝑠
6
𝑛= 5 4 = 22
12

22
𝐹 = 𝑃5,500 1 + 0.02

F = P8,502.89
Accumulate P 8,400 for 2 years at 7% converted monthly.

𝑃 = 𝑃8,400 𝑛
𝐹 =𝑃 1+𝑖
𝑡 = 2 𝑦𝑟𝑠
7%
𝑟 = 7% 𝑖=
12

𝑚 = 12 𝑛 = 2 12 = 24
24
0.07
𝐹 = 𝑃8,400 1 +
12

F = P9,658.37
What sum of money will be required to settle a loan of P25,000 on July 1, 2020, if
the loan is made on October 1, 2019 at a rate of 9% compounded quarterly?

𝑃 = 𝑃25,000 𝑛
𝐹 =𝑃 1+𝑖
𝑟 = 9%
9%
𝑚=4 𝑖= = 2.25%
4
𝑡 = 9 𝑚𝑜𝑠
9
𝑛= 4 =3
12

3
𝐹 = 𝑃25,000 1 + 0.0225

F = P26,725.75
 If money is invested at 9% compounded quarterly, find the present
value of P150,000 due at the end of 2 years and 9 months.

𝑟 = 9% −𝑛
𝑃 =𝐹 1+𝑖
𝑚=4
9%
𝐹 = 𝑃150,000 𝑖= = 2.25%
4
𝑡 = 2 𝑦𝑟𝑠 & 9 𝑚𝑜𝑠
9
𝑛= 2 4 = 11
12

−11
𝑃 = 𝑃150,000 1 + 0.0225

P= P117,434.25
 Discount P260,400 for 5 years and 3 months at 6%
compounded monthly.

−𝑛
𝐹 = 𝑃260,400
𝑃 =𝐹 1+𝑖
6%
𝑡 = 5 𝑦𝑟𝑠 & 3 𝑚𝑜𝑠 𝑖= = 0.5%
12
𝑟 = 6% 3
𝑛= 5 12 = 63
12
𝑚 = 12
−63
𝑃 = 𝑃260,400 1 + 0.005

P= P190,186.24
How much should you invest today to provide your only son a
brand new car worth P850,000 as a graduation gift 7 years
from now if money is worth 10½ % compounded quarterly?

−𝑛
𝐹 = 𝑃850,000
𝑃 =𝐹 1+𝑖

𝑡 = 7 𝑦𝑟𝑠 10.5%
𝑖= = 2.625%
4
𝑟 = 10.5%
𝑛 = 7 4 = 28
𝑚=4

−28
𝑃 = 𝑃850,000 1 + 0.02625

P= P411,462.41