Compound Interest refers to the sum of interests of prior Jennelyn deposited Php 10,000 at 15% for 5 years.

periods computed or the original or principal amount Determine the compound amount or future value of the
and each of successive periods on both the principal and deposit if the interest is compounded:
interest. 1. Monthly – Php 21, 071.81

Terms Related to Compounding of Interest

Nominal rate refers to the rate of borrowing and is

usually quoted as an annual interest rate, unless
otherwise specified.
Frequency or Number of Conversions refers to the 2. Quarterly - Php 20, 881.52
number of times the interest is added to the principal in
a year.
Compounding Period: (2 years)

Period Frequency Term of the Total

Compounding
Loan Period
Annually 1 2 years 2 3. Semi-annually – Php 20, 610.31
Semi-annually 2 2 years 4
Quarterly 4 2 years 8
Monthly 12 2 years 24

Periodic rate or interest rate per compounding period

refers to the interest rate per conversion period. It is
equal to the nominal rate divided by the compounding
period in a year. Lanelyn invested Php 15, 000 for 8 years and 7 months
at 10% compounded quarterly. – Php 35, 016.87
Julien plans to borrow a sum of money from a bank,
payable for 3 years. The bank is charging 12% interest
compounded quarterly.
Required: Determine the following:
1. Nominal rate of interest – 12%
2. Total number of conversion periods – 12
(4 quarters x 3 years)
3. Periodic rate of interest – 3%
(12%/4 quarters)

Compound Amount is the accumulated value of the Present Value of a Compound Amount – determines the
principal and all interest amounts of prior periods. In value now or the amount of money worth today.
other words, it is the sum of the principal and all P = C (1 + i)-n
compound interests. where:
P = Principal or present value
On January 1, 2018, Louie borrowed Php 10,000 at 12% C = Compound Amount
compounded quarterly for 1 year. i = Periodic interest rate
n = Total number of compounding periods
Required: Determine the following:
1. Compound amount – Php 11, 255.09
Jocelyn plans to raise Php 300,000 in 3 years. Discount
the amount at 12% compounded quarterly. – Php 210,
414 (P)

2. Compound interest – Php 11, 255.09

Compound Amount Formula

Compound Amount (C) = P (1 + i)n
where:
C = Compound Amount
P = Principal or present value
i = Periodic interest rate
n = Total number of compounding periods