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Finding Time and Rate For Compound Interest

This document discusses methods for calculating compound interest rates and time periods. It provides formulas for finding the time/term for compound interest given the principal, interest rate, and future value, as well as for finding the nominal interest rate given those same factors. Several examples demonstrate using the formulas to calculate terms or rates. Key factors that determine compound interest calculations are the principal amount, interest rate, compounding periods, and future/target value.

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Jerry Mae Ranes
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218 views11 pages

Finding Time and Rate For Compound Interest

This document discusses methods for calculating compound interest rates and time periods. It provides formulas for finding the time/term for compound interest given the principal, interest rate, and future value, as well as for finding the nominal interest rate given those same factors. Several examples demonstrate using the formulas to calculate terms or rates. Key factors that determine compound interest calculations are the principal amount, interest rate, compounding periods, and future/target value.

Uploaded by

Jerry Mae Ranes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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FINDING INTEREST RATE

AND TIME IN
COMPOUND INTEREST
LESSON OUTLINE
1. Compute interest rate in compound interest
2. Compute time or terms in compound interest
FINDING THE TIME/TERM FOR
COMPOUND INTEREST
𝐹
log
𝑃
log 1 + 𝑗
𝑡=
𝑚

Where: 𝑡 = time or term


𝐹 = maturity value
𝑃 = principal amount
𝑗 = rate of interest for each conversion period
𝑚 = number of conversion periods in one year
EXAMPLE #1
How long will it take P3,000 pesos to accumulate to
P3,500 in a bank savings account at 0.25%
compounded monthly?

Answer: Thus, payments must be made for 61.67


years.
EXAMPLE #2
How long will it take P1,000 to earn P300 if the interest
is 12% compounded semi-annually?

Answer: It will take 2.25 years for P1,000 to earn


P300.
EXAMPLE #3
How long will a principal earn 50% of this amount at 6%
compounded quarterly?

Answer: It will take 6.81 years for a principal amount


earn 50% of it.
EXAMPLE #4
Ethan must pay P15,500 to pay an obligation of
P12,000 at 6% compounded monthly. When should
this payment be given?

Answer: P15,500 must be given after 4.28 years.


FINDING THE NOMINAL RATE FOR
COMPOUND INTEREST
1
𝑚
𝐹 𝑛
𝑖 = −1 𝑚
𝑃

Where: 𝑖 𝑚 = nominal rate


𝐹 = maturity value
𝑃 = principal amount
𝑚 = number of conversion periods in one year
EXAMPLE #5
At what nominal rate compounded semi-annually will
P10,000 accumulate to P15,000 in 10 years?

Answer: Hence, the nominal rate is 4.10%.


EXAMPLE #6
At what interest rate compounded quarterly will money
double itself in 10 years?

Answer: Therefore, the nominal rate that will double


an amount of money compounded quarterly in 10
years is 6.99%.
EXAMPLE #7
Shirl is planning to invest P20,000. At what rate
compounded semi-annually will accumulate her money
to P25,000 in 3 years?

Answer: The money will accumulate P25,000 at


7.58% interest rate compounded semi-annually.

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