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Lesson 27: Finding Interest Rate and Time in Compound Interest

This document provides lesson content on compound interest, including finding interest rates and time periods. It defines key terms like compound interest and nominal interest rate. The lesson outlines formulas for calculating the future value and present value of annuities using regular payments, interest rates, and number of periods. Examples are provided to demonstrate calculating the number of periods to accumulate a given amount at a given interest rate, and finding the interest rate needed to accumulate an amount over time.

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Donna Angela Zafra Balbuena
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93 views15 pages

Lesson 27: Finding Interest Rate and Time in Compound Interest

This document provides lesson content on compound interest, including finding interest rates and time periods. It defines key terms like compound interest and nominal interest rate. The lesson outlines formulas for calculating the future value and present value of annuities using regular payments, interest rates, and number of periods. Examples are provided to demonstrate calculating the number of periods to accumulate a given amount at a given interest rate, and finding the interest rate needed to accumulate an amount over time.

Uploaded by

Donna Angela Zafra Balbuena
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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LESSON 27:

F I N D I N G I N T E R E S T R AT E
AND TIME IN COMPOUND
INTEREST

G ROUP 2 | 11 - EX AC TNESS
LEARNING OUTCOME:
AT T H E E N D O F T H E L E S S O N , T H E
L E A R N E R I S A B L E T O S O LV E P R O B L E M S
I N V O LV I N G R AT E O F I N T E R E S T A N D
TIME IN COMPOUND INTEREST
LESSON
OUTLINE
1. INTEREST AND TIME IN COMPOUND
INTEREST
2 . E Q U I V A L E N T I N T E R E S T R AT E
DEFINITION OF TERMS
• Compound interest- interest computed on the sum of an
original principal and accumulated interest
• Interest rate- the amount a lender/bank charges for the
use of assets expressed as a percentage of the principal.
• Nominal rate- refers to the interest rate before taking
inflation into account.
FINDING THE NUMBER OF PERIODS OF N ,
FOR COMPOUND INTEREST:
•

;
EXAMPLE: HOW LONG WILL IT TAKE
P3,000 TO ACCUMULATE TO P3,500 IN A
BANK SAVINGS ACCOUNT AT 0.25%
COMPOUNDED MONTHLY?
•
•
FINDING THE INTEREST RATE, J, PER
CONVERSION PERIOD
•
EXAMPLE: AT WHAT NOMINAL RATE
COMPOUNDED SEMI-ANNUALLY WILL P10,000
ACCUMULATE TO P15,OO0 IN 10 YEARS?
•
ANNUITY
• a sequence of payments made at equal (fixed) intervals
or periods of time
Definition of terms:
• term of an annuity, t - time between the first payment
interval and last payment interval
• regular or periodic payment, R - the amount of each
payment
• amount (future value) of an annuity, F - sum of future
values
• present value of an annuity, P - sum of present values
AMOUNT (FUTURE VALUE) OF AN ANNUITY
The future value of an annuity is the value of a group of recurring payments
at a specified date in the future; these regularly recurring payments are
known as an annuity. The future value of an annuity measures how much you
would have in the future at a specified rate of return or discount rate.
F = R (1 + j)^n - 1/j
where:
R is the regular payment;
j is the interest rate per period;
n is the mumber of payments
PRESENT VALUE OF ORDINARY ANNUITY
Present Value of Annuity. The present value of annuity formula determines the
value of a series of future periodic payments at a given time. The present value of
annuity formula relies on the concept of time value of money, in that one dollar
present day is worth more than that same dollar at a future date.
P = R 1 - (1 + j)^-n/ j
where:
R = the regular payment
j = is the interest rate per period
n = is the number of payments

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