BUSINESS

FINANCE
PREPARED BY: GROUP 1
Ms. Lilibeth Bautista
Compound Interest
The usual assumption in most business
transaction is to use compound interest.
Compound interest is simply earning interest. This
means that the basis for the computation of the
applicable interest for a certain period is not only
the original principal but also any interest earned in
the previous period assuming all cash flows would
be paid or received in lump sum upon maturity.
FORMULA
A= future value
P= principal
r= annual rate
n= number of compounding periods a year
t= number of years

A = P(1+r/n)rxt
EXAMPLE 1
An investment earns 3% compounded monthly. Find the value of an
initial investment of P5,000 after 6 years.

r = 0.03
n = 12
P = 5,000
t=6

A = P(1+r/n)nxt
=5000(1+0.03/12)12×6
=P5984.74
EXAMPLE 2
What is the value of an investment of P3,500 after 2 years if it
earns 1.5% compounded quarterly?
r = 0.015
n= 4
P = 3,500
t=2

A = P(1+r/n)nxt
=3,500(1+0.015/4)4×2
=P3,606.39
EXAMPLE 3
Mary paid P8,000 at 4% after 3 years in finance compounded
quarterly. To find the compound interest.

r = .4
P = 8000
t=3
n= 4

A = P(1+r/n)nxt
=8,000(1+.4/4)4×3
=P25107.43
EXAMPLE 4
An investment earns 2.5% compounded monthly. Find
the value of an initial investment of P4,500 after 5 years.

r = 0.025
P = 4,500
t=5
n= 12

A = P(1+r/n)nxt
=4500(1+0.025/12)12×5
=P5098.51
EXAMPLE 5
What is the value of an investment of P8,000 after 3 years if it
earns 3% compounded quarterly?

r = 0.03
P =8,000
t=3
n= 4

A = P(1+r/n)nxt
=8000(1+0.03/4)4×3
=P8750.46
SEATWORK

September 18, 2018

1.Alvin investment earns 5% compounded monthly. Find the value of
an initial investment of P7,000 after 7 years.
r = 0.05
P =7,000
t=7
n= 12

A = P(1+r/n)nxt
=7000(1+0.05/12)12×7
=P9926.25
2.Zeke investment earns 3.5% compounded quarterly. Find the
value of an initial investment of P6,500 after 6 years.
r = 0.035
P =6,500
t=6
n= 4

A = P(1+r/n)nxt
=6,500(1+0.035/4)4×6
=P8011.59
3. What is the value of an investment of P10,000 after 5 years if it
earns 3.5% compounded quarterly.
r = 0.035
P =10,000
t=5
n= 4

A = P(1+r/n)nxt
=10,000(1+0.035/4)4×5
=P11,903.40
4. What is the value of an investment of $8,500 after 2 years if it
earns 1.4% compounded quarterly.
r = 0.014
P =8,500
t=2
n= 12

A = P(1+r/n)nxt
=8,500(1+0.014/12)12x2
=$8741.22
5. Matthew investment earns 3.2% compounded quarterly. Find the
value of an initial investment of $5,000 after 6 years.
r = 0.032
P =5,000
t=6
n= 4

A = P(1+r/n)nxt
=5000(1+0.032/4)4x6
=$6053.73
Goli, Francel
Santos, Claire Ann
Quince, Marjurie
Buenaventura, Allyza
Sevilla, Renz
Singzon, Reynaldo
Lopez, Matthew
Flores, Myca
Alobog, Sed