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Gen Math Report

This document discusses compound interest, including formulas for calculating maturity value, present value, and compound interest. It provides two examples for each calculation. The key aspects are: - Maturity (future) value (F) is calculated as Principal (P) multiplied by (1 + interest rate (r)) raised to the power of time (t). - Compound interest (Ic) is calculated as the difference between maturity value (F) and principal (P). - Present value (P) is calculated as maturity value (F) divided by (1 + interest rate (r)) raised to the power of time (t).

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Benj Lascano Fabia
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101 views12 pages

Gen Math Report

This document discusses compound interest, including formulas for calculating maturity value, present value, and compound interest. It provides two examples for each calculation. The key aspects are: - Maturity (future) value (F) is calculated as Principal (P) multiplied by (1 + interest rate (r)) raised to the power of time (t). - Compound interest (Ic) is calculated as the difference between maturity value (F) and principal (P). - Present value (P) is calculated as maturity value (F) divided by (1 + interest rate (r)) raised to the power of time (t).

Uploaded by

Benj Lascano Fabia
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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COMPOUND INTEREST

LESSON OUTLINE

• Maturity value

• Present value
MATURITY (FUTURE) VALUE AND
COMPOUND INTEREST
F = P(1+r)t

Where:
P = principal or present value
F = maturity (future) value at the end of the term
r = interest rate
t = term/ time in years

The compound interest Ic = F-P


Example 1.

Find the maturity value and the compound interest if


P10,000 is compounded annually at an interest rate of 2%
in 5 years.

Given: P = 10,000 r = 2% = 0.02 t = 5 years

Find: (a) Maturity value - F


(b) Compound interest – Ic
SOLUTION

(a) F = P(1+r)t
F = (10,000)(1+ 0.02)5
F = (10,000)(1.02)5
F = (10,000)(1.104080803)
F = 11,040.081 Answer: the future value (F) is
P11,040.81 and the compound
interest (Ic) is P1,040.81
(b) Ic = F - P
Ic = 11,040.81 – 10,000
Ic = 1,040.81
EXAMPLE 2.

Find the maturity value and interest if P50,000 is invested


at 5% compounded annually for 8 years

Given: P = 50,000 r = 5% = 0.05 t = 8 years

Find: (a) Maturity value – F


(b) Compound interest - Ic
SOLUTION
(a) F = P(1+r)t
F = (50,000)(1+ 0.05)8
F = (50,000)(1.05)8
F = (50,000)(1.477455444) Answer: the future value (F) is
P11,040.81 and the
F = 73,872.77 compound interest (Ic) is
P1,040.81
(b) Ic = F - P
Ic = 73,872.77 – 50,000
Ic = 23,872.77
PRESENT VALUE (P) AT COMPOUND
INTEREST
P= F
_________ = F (1 + r)t
(1 + r)t
Where:
P = principal or present value
F = maturity (future) value at the end of the term
r = interest rate
t = term/ time in years
EXAMPLE 1.
What is the present value of P50,000 due in 7 years if
money is worth 10% compounded annually?

Given: F = 50,000 r = 10% = 0.1 t = 7 years

Find: P
SOLUTION

The present value (P) can be obtained by

P __________
= F P = 25,657.91
(1 + r)t

P = ____________
50,000
(1 + 0.1)7
Answer: The present value is P25,657.91
P = ____________
50,000
1.9487171
EXAMPLE 2.
How much money should a student place in a time deposit
in a bank that pays 1.1% compounded annually so that he
will have P200,000 after 6 years?

Given: F = 200,000 r = 1.1% = 0.011 t = 6 years

Find: P
SOLUTION
The present value (P) can be obtained by

P_________
= F P = 187,293.65
(1 + r)t

Answer: the student should


P =_________
200,000
deposit P187,293.65
(1 + 0.011)6

P = ___________
200,000
1.067841841

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