COMPOUND INTEREST – a type of interest in which the interest is computed periodically.

F = P ( 1 + i)n

where F = Compound Amount= amount to be paid or amount in the account during the maturity date.
P = Principal = amount borrowed/loaned/deposited/invested
i = periodic interest rate = interest rate every period
i = j/m j = interest rate in 1 year (usually the given rate)
m = no. of periods in 1 year
yearly/annually: m=1
semiannually: m = 2 (every 6 months)
quarterly: m = 4 (every 3 months)
bimonthly: m = 6( every 2 months)
monthly: m = 12 (every month)
n = total number of periods for the whole duration/term
t = time (in terms of year)
n = mt

*** Explanation and Comparison of Simple Interest, Discount Interest, and Compound Interest is in the
attached.

Other Formulas:
Finding the Principal: P = F ( 1+ i)-n
Finding the Periodic Interest Rate: i = [ (F/P)1/n - 1]
Finding the Periodic Interest Rate: j =m [ (F/P)1/n - 1]
Finding the Time: t = 1 [ log (F/P)]
m [ log (1+i)]
Examples:
1. Mae invested Php50,000 at 3% compounded quarterly. How much will Mae have after 2 years and 6
months?
Given: P = Php50,000 (key word is invested)
j = 3% or 0.03 (% - annual interest rate or interest rate in 1 year)
m = 4 (quarterly- no. of times interest will be computed in a year)
i = j/m = .03/4 = .0075 or .75% (periodic interest rate or interest rate every 3 mos.)
t = 2 years and 6 months or 2.5 ( 6/12=.5)
n = mt = 4*2.5 = 10 (n = total no. of times interest will be computed)
F =?
F = P ( 1 + i)n
= 50,000 ( 1+.0075)10
= 50,000 (1.0775825)
F = PhP53,879.127 or PhP53,879.13

2. At what interest rate did Ric borrowed Php75,000 if he paid Php97,354.70 after 1 year and 9 months
compounded monthly?
Given: P = Php75,000 (borrowed)
F = Php97,354.70 (paid implies one has to pay the Principal together with its Interest)
t = 1 year and 9 mos. = 1.75 ( 9/12 = .75)
m = 12 (monthly)
n = mt = 12* 1.75 = 21 (total no.of times interest will be computed for the entire term)
j=?

j =m [ (F/P)1/n - 1]
= 12 [ (97,354.70/75,000)1/21 - 1]
= 12 ( 1.01249999887 – 1)
j = 0.149999… or 14.9999 or 15%
3. How long should Nely deposit her money to double itself compounded monthly at 12% interest rate?
Given: t= ?
P = 5 (Just think and use of any number)
F = 10 (double the number that you think and use as P)
m = 12 (monthly)
j = 12% or 0.12 (annual interest rate or interest rate every year)
i = j/m = .12/12 = 0.01 (periodic interest rate or interest rate every month)

t=1 [ log (F/P)]

m [ log (1+i)]

t=1 [ log (10/5) ]

12 [ log (1+.01)]

t = 1 (.301029995663981)
12 (.004321373782643)
= 69.66071689356798
12
t = 5.80505974 yrs. or 5 years and 10 months ( . 80505974 * 12 = 9.66 months or 10months)

4. How much did Ben borrowed if he paid Php125,000 after 3 years and 6 months compounded
bimonthly? Money is given 15.3%
Given: P = ?
F = Php125,000
t = 3 years and 6 months or 3.5 years (6/12 = .50)
m = 6 (bimonthly)
n = mt = 6*3.5 = 21
j = 15.3% = .153 (interest rate in 1 year or annual interest rate)
i = j/m = .153/6 = 0.0255 (interest rate every 2 months or periodic interest rate)

P = F ( 1+ i)-n
= 125,000 (1+.0255)-21
= 125,000 (1.69687151291884)
P = Php212,108.939 or Php212,108.94