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    Q2-Compounding-more-than-once-a-year (2)

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    Viray Nancy
    General Math

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    Q2-Compounding-more-than-once-a-year (2)

    Uploaded by

    Viray Nancy
    0 views20 pages
    General Math

    Copyright

    © © All Rights Reserved

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    PDF, TXT or read online from Scribd

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    General Math

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    0 views20 pages

    Q2-Compounding-more-than-once-a-year (2)

    Uploaded by

    Viray Nancy
    General Math

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 20

    Compound Amount

    It is usually either three months, six months


    or one year, in which cases interest is said
    to be compounded quarterly, semiannually,
    or annually respectively. The total amount
    due at any time is called the compound
    amount.
    Interest Period (t)

    The interval of time between


    successive conversions of interest.
    Frequency of
    Conversion (m)

     number of conversion period in


    one year
    Interest Period with frequency
    conversion
    Annually :m=1
    Semi-annually : m = 2
    Quarterly :m=4
    Monthly : m = 12
    Interest Period

    Daily :
    If ordinary interest, m = 365
    exact interest, m = 366
    Total number of
    conversion periods (n)

    n = mt
    =(frequency of conversion)
    (time in years)
    𝑖^𝑚

    Nominal Rate ( )
     Annual rate of interest.

    For example, a nominal annual interest rate of 12%


    compounded monthly.
    Rate of interest (j) for
    each conversion period

    j= =
    Rate of interest (j) for
    each conversion period

    Example:
    For example, a nominal annual interest rate of
    12% based on monthly compounding means a
    1% interest rate per month (j).
    Rate of interest (j) for each
    conversion period
    Example
    Calculate the rate of interest per conversion period where
    nominal rate is 5% if
    a. Compounded quarterly
    b. Compounded monthly
    Maturity Value for interest
    compounding m times a year

    F = P (1 + j) n

    F – future value j=

    P - principal n = mt
    Present Value given the maturity
    value

    P=
    F – future value j=

    P - principal n = mt
    Example 1: nominal rates and the corresponding frequencies of
    conversion and interest rate for each period.
    Examples

    1. Find the compound interest and maturity


    value if P = ₱43,000, with a rate of 5% for
    6 years. It is compounded
    a. annually c. monthly
    b. quarterly d. semi-annually
    Examples
    2. Arthur wants to set aside an
    amount to be invested in a fund
    earning 1.02% compounded quarterly,
    if he wants to accumulate ₱
    250,000.00 in 4 years, how much
    must he set aside?
    Examples
    3. If P = ₱85,500, and r = 1.25% compounded
    monthly for 1 year, find the compound
    interest.
    4. If F = ₱50,000 with the rate 1.5%
    compounded daily for 5 years find the present
    value and compound interest.
    Examples
    5. Find the compound interest and present
    value if F = ₱105,000 with a rate of 2.5% is
    compounded quarterly for 3 years.
    Examples
    1. Given = ₱65,000.00, ^2 = 0.03, = 2,
    = 4, find F and Ic .
    2. Given = ₱50,000.00, = 0.03, = 4,
    =2 , find F and Ic .
    3. Given P= ₱45,000.00, = 0.02, = 2, =
    4, find Ic .

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