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Compound Interest Rate and Time

The document discusses interest rates, time, and compounding interest calculations. It provides examples of calculating the time required for a principal to accumulate to a future value at a given interest rate. It also shows examples of calculating the interest rate required for a principal to reach a future value over a set period of time. The document defines key terms like nominal rate and effective rate. It includes practice problems for students to complete involving interest, time, and compounding interest calculations.

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RJRegio
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3K views18 pages

Compound Interest Rate and Time

The document discusses interest rates, time, and compounding interest calculations. It provides examples of calculating the time required for a principal to accumulate to a future value at a given interest rate. It also shows examples of calculating the interest rate required for a principal to reach a future value over a set period of time. The document defines key terms like nominal rate and effective rate. It includes practice problems for students to complete involving interest, time, and compounding interest calculations.

Uploaded by

RJRegio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Objectives:

The learner is able to solve problems


involving rate of interest and time in
years.
Example 1:
How long will it take Php 3,000 to accumulate ₱3,500 in a
bank savings account at 0.25% compounded monthly?

Note:
Use LOGARITHM to solve unknowns that appear in the exponent.

Given:
FV = ₱3,500
P = ₱ 3,000
r = 0.25% or 0.0025
n = 12

Find:
t or time

t = 61.67 years
Seatwork:
How long will it take Php1,000 to earn Php300 if
the interest is 12% compounded semi-annually?

t = 2.25 years
Finding the Interest Rate

Example 2:

At what nominal rate compounded semi-annually will Php10,000


accumulate to Php15,000 in 10 years?

Given:
F = Php15,000
P = Php10,000
t = 10 years
n=2

Find:
r or rate

r = 4.10%
EXAMPLE 4:

At what interest rate compounded quarterly will money


double itself in 10 years?

Given:
F = 2P
n= 4
t = 10
P= P

Find:
r = interest rate
r = 7.00%
Seatwork:

1. How long will it take Php 15,000 to earn Php 5,000 if it is invested at
12% monthly?

2. Nora borrowed an amount of Php40,000 which she paid with an


interest of Php2,000 at the end of 3 years. At what nominal rate
compounded semi-annually was it invested?

3. At what annual interest rate compounded semi-annually will a certain amount


triple itself in 20 years?
Seatwork:

1. How long will it take Php 15,000 to earn Php 5,000 if it is invested at
12% monthly?
2.4 years

2. Nora borrowed an amount of Php40,000 which she paid with an


interest of Php2,000 at the end of 3 years. At what nominal rate
compounded semi-annually was it invested?

1.63% nominal rate or


0.82% for each conversion period

3. At what annual interest rate compounded semi-annually will a certain amount


triple itself in 20 years?

5.57%
DEFINITION OF TERMS:

EQUIVALENT RATES: two annual rates with


different conversion periods that will earn the
same compound amount at the end of a given
number of years.

NOMINAL RATE: annual interest rate (may be


compounded more than once a year)

EFFECTIVE RATE: the rate compounded annually


that will give the same compound amount as
given nominal rate; denoted by i(1)
Convert interest rate to an equivalent interest rate.
Complete the table for computing for the rates equivalent to the following
nominal rates.

Given Interest Rates Equivalent Interest Rates

12% compounded monthly ____ compounded annually

8% compounded semi-annually ____ compounded quarterly

12% compounded monthly ____ compounded semi-annually


r = 12.68 % r = 7.92 %
Convert interest rate to an equivalent interest rate.
Complete the table for computing for the rates equivalent to the following
nominal rates.

Given Interest Rates Equivalent Interest Rates

12% compounded monthly 12.68 % compounded annually

8% compounded semi-annually 7.92 % compounded quarterly

12% compounded monthly 12.30% compounded semi-


annually
Quiz:
1. What is the nominal rate of interest if Php4,000
accumulates to Php10,000 in 8 years with interest
compounded quarterly?

2. At what nominal rate compounded semi-annually will


Php5,000 amount to Php6,000 in 2 years?

3. In how many years will it take ₱18,000 accumulate to


20,000 when deposited in a savings account that earns
0.250% compound monthly?

4. How long will a principal double when invested at 10%


compounded semi-annually?
Complete the table by finding the unknown values ( time and rate)

P Nominal Interest Frequency of Interest Time in Total Compound Compound


Rate Compounded Conversions rate per Years Number of Interest Amount
period Conversions

2,000 (1) Semi-annually (2) (3) 2 (4) (5) 2,800

5,000 (6) Quarterly (7) (8) 5 years (9) 500 (10)


and 3
months
10,000 16% monthly (11) (12) (13) (14) (15) 11,879
Complete the table by computing for the following equivalent interest rates.

Given Interest Rate Equivalent Interest Rate


2% compounded annually _____ Compounded quarterly
6% compounded quarterly _____ Compounded semi-annually
0.5% compounded semi annually _____ Compounded annually
Quiz:
1. What is the nominal rate of interest if Php4,000
accumulates to Php10,000 in 8 years with interest
compounded quarterly? 11.62%

2. At what nominal rate compounded semi-annually will


Php5,000 amount to Php6,000 in 2 years? 9.33%

3. In how many years will it take ₱18,000 accumulate to


20,000 when deposited in a savings account that earns
0.250% compound monthly? 42 years and 2 months

4. How long will a principal double when invested at 10%


compounded semi-annually? 7 years and 6 months
Complete the table by finding the unknown values ( time and rate)

P Nominal Interest Frequency of Interest Time in Number of Compound Compound


Rate Compounded Conversions rate per Years Conversions Interest Amount
period

2,000 17.55% Semi-annually 2 8.78% 2 4 800 2,800

5,000 1.82% Quarterly 4 0.45% 5 years 21 500 5,500


and 3
months
10,000 16% monthly 12 1.33% 1.083 13 1,879 11,879
Complete the table by computing for the following equivalent interest rates.

Given Interest Rate Equivalent Interest Rate


2% compounded annually _____ Compounded quarterly 0.019852
6% compounded quarterly _____ Compounded semi-annually 0.06045
0.5% compounded semi annually _____ Compounded annually 0.005006

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