This document discusses equivalent interest rates. It provides formulas to calculate the compound interest rate equivalent to another rate, the simple interest rate equivalent to a compound rate, and the compound rate equivalent to a simple rate. Examples are given to demonstrate calculating equivalent rates when money is invested for different periods of time at various given rates.
This document discusses equivalent interest rates. It provides formulas to calculate the compound interest rate equivalent to another rate, the simple interest rate equivalent to a compound rate, and the compound rate equivalent to a simple rate. Examples are given to demonstrate calculating equivalent rates when money is invested for different periods of time at various given rates.
This document discusses equivalent interest rates. It provides formulas to calculate the compound interest rate equivalent to another rate, the simple interest rate equivalent to a compound rate, and the compound rate equivalent to a simple rate. Examples are given to demonstrate calculating equivalent rates when money is invested for different periods of time at various given rates.
This document discusses equivalent interest rates. It provides formulas to calculate the compound interest rate equivalent to another rate, the simple interest rate equivalent to a compound rate, and the compound rate equivalent to a simple rate. Examples are given to demonstrate calculating equivalent rates when money is invested for different periods of time at various given rates.
If two rates produce equal interests on the same principal amount in
the same period of time.
Case 1 • To determine the compound interest rate equivalent to another compound interest rate. 𝑚 𝐺 𝑚𝑒 Formula: 𝑒𝑞 = 𝑚𝑒 1 +𝑚 −1
where eq - the unknown rate me - the conversion period of the missing rate G - the given compound interest rate m - the conversion period of the given rate What rate compounded semi-annually is equivalent to 6% compounded monthly?
2 12 𝑟 0.06 1+ = 1+ 2 12
𝑟 = 6.08% What rate converted monthly is equivalent to 9.2% compounded quarterly? 12 4 𝑟 0.092 1+ = 1+ 12 4
𝑟 = 9.13% If you are to invest P500 000 at 14% converted semi-annually for 7 years, what rate compounded quarterly could you just as well invest your money?
4 2 𝑟 0.14 1+ = 1+ 4 2
𝑟 = 13.76% Case 2 • To determine the simple interest rate equivalent to compound interest rate.
1+𝑖 𝑛 −1 Formula: 𝑟𝑠 = 𝑡
where: rs - the unknown simple interest
i - the periodic rate n - the total number of conversion periods for the whole term t - the term or time of the investment What simple interest rate is equivalent to 5 ½ % compounded semi-annually, if money is invested for 5.5 years? 𝑛 1 + 𝑟𝑠 𝑡 = 1 + 𝑖
11 0.055 1 + 𝑟𝑠 (5.5) = 1 + 2
𝑟𝑠 = 6.32% Find the simple interest rate equivalent to 10% compounded quarterly for 3 years and 3 months. 𝑛 1 + 𝑟𝑠 𝑡 = 1 + 𝑖
13 3 0.1 1 + 𝑟𝑠 3 = 1+ 12 4
𝑟𝑠 = 11.65% Case 3 • To determine the compound interest rate equivalent to a given simple interest rate. 1 Formula: 𝑟𝑐 = 𝑚 1 + 𝑟𝑠 𝑡 𝑛 −1
where: rc - the unknown compound interest
m - conversion period of the missing rate rs - the given simple interest t - the term or time of the investment n - the number of conversion period for the whole term What rate compounded quarterly is 1 equivalent to simple interest rate of 7 % 2 for 7 years? 𝑛 1 + 𝑟𝑠 𝑡 = 1 + 𝑖
𝑟 28 1 + 0.075 7 = 1 + 4
𝑟 = 6.07% 1 Ms. Castro plans to invest P100,000 at 12 % 2 simple interest for three years. At what rate compounded semi-annually could she just as well invest for the same period of time?
𝑛 1 + 𝑟𝑠 𝑡 = 1 + 𝑖
𝑟 6 1 + 0.125 3 = 1 + 2
𝑟 = 10.9% If term is 15 months, what rate compounded quarterly is equivalent to 12% a.) simple interest? b.) compounded semi annually? 𝑎. 𝑟 = 11.34% 𝑏. 𝑟 = 11.83%
