This document discusses compound interest, which is interest calculated on the principal amount as well as on accumulated interest from previous periods. It provides formulas for calculating the maturity value, compound interest, and present value given the principal, interest rate, and time. It includes three examples calculating these values in different compound interest scenarios. It concludes with an activity asking the reader to complete a table calculating compound interest, maturity value, and other values for given principal amounts, interest rates, and time periods using the formulas provided.

1. COMPOUND
INTERESTALAN S. ABERILLA

2. COMPOUND
INTEREST - Interest is computed on the principal and also on
the accumulated past
interests.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 is given
Example 1:
Find the maturity value and the compound
interest if P 10,000.00 is compounded annually at
an interest rate of 2% in 5 years.
Given: P = P 10,000.00 r = 2% = 0.02
t = 5 years
Find: (a) maturity value F (b) compound
interest Ic
Solution:
(a) F = P(1 + r)t (b) Ic = F - P
F = (P 10,000.00)(1 + 0.02)5 Ic = P
11,040.80 – P 10,000.00
F = (P 10,000.00)(1.10408) Ic = P

3. Example 2:
Suppose your father deposited in your bank account P 10,000.00 at an annual
rate of 0.05% compounded yearly when you graduate from kindergarten and
get the amount until you finish Grade 12. How much will you have in your
after 12 years?
Given: P = P 10,000.00 r = 0.5% = 0.005 t = 12 years
Find: future value F
Solution:
F = P(1 + r)t
F = (P 10,000.00)(1 + 0.005)12
F = (P 10,000.00)(1.0616778
F = P 10,616.78

4. Present Value P at Compound
Interest
P = F/(1 + r)t
or
P = F(1 + r)-t
where;
P = principal or present value
F = maturity (future) value at
end of the
term
r = interest rate
t = term/time in years
Example 3:
What is the present value of P 50,000.00
due in 7 years if money is worth 10%
compounded annually?
Given: F = P 50,000.00 r = 10% =
0.1 t = 7 years
Find: present value P
Solution:
(a) P = F/(1 + r)t
P = P 50,000.00/(1 + 0.1)7
P = P 50,000.00)/1.9487171
P = P 25,657.91

5. Activity 3
Complete the table below.
 Use short bond paper (encoded or
handwritten)
 Support your answers with
solutions.Principal
(P)
Rate (r) Time (t) Compoun
d Interest
(Ic)
Maturity
Value (F)
P 8% 12 years (1) (2)
P
12,000.00
5.5% 6 years
9 months
(3) (4)
P
60,000.00
9.75% 10 months (5) (6)
(7) 1% 6 years (8) P
25,000.00
(9) 7.5% 4 years (10) P

6. KEEP SAFE
GOOD LUCK
GOD BLESS
Sir A