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I. Simple interest problem. Complete the table by finding the unknown. Note that r is annually.
P(Principal) r(rate) t(time) I(interest) P(Principal) r(rate) t(time) I(interest)
P5000 5% 5 years P1250 P3000 6% 4 years P720
P20000 3% 2 years P1200 P2000 1% 21 years P420
P2000 2.5% 3 years P150 P3500 10% 6 months P175
P4000 2% 4 years P320 P1000 3% 5 years P150
P10000 3% 9 months P225 P2400 16% 1 month P32
II. Compound interest problem. Complete the table by finding the unknown. Note that r is annually.
3
10225 4
√
= ( ) − 1 = 1.030112 − 1 = 0.030112 ≈ 3.01%
10000
𝐹𝑉 3000+720 3720
t = log1+𝑟 ( 𝑃 ) = log1+0.06 = log1.06 3000 = 3.69 𝑦𝑒𝑎𝑟𝑠
3000
𝐹𝑉 2000+420 2420
t = log1+𝑟 ( 𝑃 ) = log1+0.01 = log1.01 2000 ≈ 19.16 𝑦𝑒𝑎𝑟𝑠
2000
𝐹𝑉 3500+175 3675
t = log1+𝑟 ( 𝑃 ) = log1+0.1 = log1.1 3500 = 0.51 𝑦𝑒𝑎𝑟
3500
𝐹𝑉 𝑃+𝐼 𝐼 𝐼 𝑃
= (1 + 𝑟)𝑡 → = (1 + 𝑟)𝑡 → 1 + = (1 + 𝑟)𝑡 → = (1 + 𝑟)𝑡 − 1 →
𝑃 𝑃 𝑃 𝑃 𝐼
1 𝐼
= →𝑃=
(1 + 𝑟)𝑡 − 1 (1 + 𝑟)𝑡 − 1
𝐼 150 150 150
𝑃= 𝑡
= 5
= = = 𝑃941.77
(1 + 𝑟) − 1 (1 + 0.03) − 1 1.159274 − 1 0.159274
𝐼 32 32 32
𝑃= 𝑡
= 1 = = = 𝑃2571.29
(1 + 𝑟) − 1
(1 + 0.16)12 − 1 1.012445 − 1 0.012445
III. Compound interest problem. Complete the table by finding the unknown. Note that r is the rate
compounded n times per year.
𝑟 𝑛𝑡 0.02 (2)(3)
FV = 𝑃 (1 + 𝑛) = 3000 (1 + ) = 3000(1.01)6 = 3184.56
2
𝐼 = 𝐹𝑉 − 𝑃 = 3184.56 − 3000 = 184.56
𝑄𝑢𝑎𝑟𝑡𝑒𝑟𝑙𝑦 𝑚𝑒𝑎𝑛𝑠 4, 𝑛 = 4
𝐹𝑉 = 𝑃 + 𝐼 = 15000 + 2574.89 = 17574.89
𝐹𝑉 15000+2574.89
log 𝑟( ) log 0.08( ) log1.02(
17574.89
)
1+ 𝑃 1+ 15000 8
𝑛 4 15000
t= = = = 4 = 2 𝑦𝑒𝑎𝑟𝑠
𝑛 4 4
monthly means 12, n=12
𝐹𝑉 = 𝑃 + 𝐼 = 4000 + 375.72 = 4375.72
1 1
𝐹𝑉 𝑛𝑡 4375.72 (12)(1.5) 1
𝑟 = 𝑛(( ) − 1) = 12(( ) − 1) = 12((1.09393)18 − 1) = 12(1.005 − 1)
𝑃 4000
= 12(0.005) = 0.06 = 6%
weekly means 52, n = 52
𝑟 𝑛𝑡 𝐹𝑉 𝑟 𝑛𝑡 𝑃+𝐼 𝑟 𝑛𝑡 𝐼 𝑟 𝑛𝑡
FV = 𝑃 (1 + 𝑛) → 𝑃 = (1 + 𝑛) → 𝑃 = (1 + 𝑛) → 1 + 𝑃 = (1 + 𝑛)
𝐼 𝑟 𝑛𝑡 𝑃 1 𝐼
→ = (1 + ) − 1 → = 𝑛𝑡 →𝑃=
𝑃 𝑛 𝐼 𝑟 𝑟 𝑛𝑡
(1 + 𝑛) − 1 (1 + 𝑛) − 1
𝐼 𝑃400.11 400.11 400.11
𝑃= 𝑛𝑡 = (52)(1)
= =
𝑟 (1 + 0.001) − 1 1.00152 − 1
52
(1 + ) − 1 (1 + 0.052) −1
𝑛 52
400.11 400.11
= = = 7500
1.053348 − 1 0.053348
𝐹𝑉 = 𝑃 + 𝐼 = 7500 + 400.11 = 7900.11
𝑟 𝑛𝑡 0.036 (360)(1)
FV = 𝑃 (1 + 𝑛) = 10000 (1 + ) = 10000(1.0001)360 = 10000(1.036654) =
360
10366.54
I = FV – P = 10366.54-10000=366.54
IV. Continuous compound. Find the maturity value of the following continuous compound problem
given the rate, time and the principal amount.
V. Annuity.
A. Complete the table by finding the unknown given that each payment/deposit is given by the end of
each period.
0.03 4(2)
(1+𝑟)𝑛 −1 (1+ ) −1 1.00758 −1 0.06159884781
4
FV = 𝑃𝑀𝑇 ( ) = 3000 ( 0.03 ) = 3000 ( ) = (3000) ( )
𝑟 0.0075 0.0075
4
= (3000)(8.2131797091) = 24639.54
0.018 12(20)
(1+𝑟)𝑛 −1 (1+ ) −1 1.0015240 −1
12
FV = 𝑃𝑀𝑇 ( ) = 100 ( 0.018 ) = 100( )
𝑟 0.0015
12
0.43294285431
= (100) ( ) = (100)(288.628569546) = 28862.86
0.0015
0.01 52(50)
(1+𝑟)𝑛 −1 (1+ ) −1 1.000192307692600 −1
52
FV = 𝑃𝑀𝑇 ( ) = 1( 0.01 ) = (1) ( )
𝑟 0.00019230769
52
0.64864200743
= (1) (0.00019230769) = (3372.93847911) = 3372.94
0.02 2(10)
(1+𝑟)𝑛 −1 (1+ ) −1 1.0120 −1
2
FV = 𝑃𝑀𝑇 ( ) = 25000 ( 0.02 ) = 25000( )
𝑟 0.01
2
0.22019003994
= (25000) ( ) = (25000)(22.019003994) = 550475.10
0.01
0.02 4(10)
(1+𝑟)𝑛 −1 (1+ ) −1 1.00540 −1
4
FV = 𝑃𝑀𝑇 ( ) = 25000 ( 0.02 ) = 25000( )
𝑟 0.005
4
0.22079423648
= (25000) ( ) = (25000)(44.1588472974) = 1103971.18
0.005
0.02 12(10)
(1+𝑟)𝑛 −1 (1+ ) −1 1.00166666666666666120 −1
12
FV = 𝑃𝑀𝑇 ( ) = 25000 ( 0.02 ) = 25000( )
𝑟 0.0016666666666
12
0.22119943386
= (25000) ( ) = (25000)(132.719660371) = 3317991.51
0.001666666
0.02 52(10)
(1+𝑟)𝑛 −1 (1+ ) −1 1.00038461538520 −1
52
FV = 𝑃𝑀𝑇 ( ) = 25000 ( 0.02 ) = 25000( )
𝑟 0.00038461538
52
0.22135579114
= (25000) (0.00038461538) = (25000)(575.525063885) = 14388126.60
B. Complete the table by finding the unknown given that each payment/deposit is given by the start
of each period.
0.03 4(2)
(1+𝑟)𝑛 −1 0.03 (1+ ) −1 1.00758 −1
4
FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )3000 ( 0.03 ) = (1.0075)3000( )
𝑟 4 0.0075
4
0.06159884781
= (3022.5) ( ) = (3022.5)(8.2131797091) = 24824.34
0.0075
0.018 12(20)
(1+𝑟)𝑛 −1 0.018 (1+ ) −1 1.0015240 −1
12
FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )100 ( 0.018 ) = (1.0015)100( )
𝑟 12 0.0015
12
0.43294285431
= (100.15) ( ) = (100.15)(288.628569546) = 28906.15
0.0015
0.01 52(50)
(1+𝑟)𝑛 −1 0.01 (1+ ) −1
52
FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )1( 0.01 )=
𝑟 52
52
1.000192307692600 −1
(1.00019230769) ( )
0.00019230769
0.64864200743
= (1.00019230769) (0.00019230769) = (1.00019230769)(3372.93847911) = 3373.59
0.02 2(10)
(1+𝑟)𝑛 −1 0.02 (1+ ) −1 1.0120 −1
2
FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )25000 ( 0.02 ) = (1.01)25000( )
𝑟 2 0.01
2
0.22019003994
= (25250) ( ) = (25250)(22.019003994) = 555979.85
0.01
0.02 4(10)
(1+𝑟)𝑛 −1 0.02 (1+ ) −1 1.00540 −1
4
FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )25000 ( 0.02 ) = (1.005)25000( )
𝑟 4 0.005
4
0.22079423648
= (25125) ( ) = (25125)(44.1588472974) = 1109491.04
0.005
0.02 12(10)
(1+𝑟)𝑛 −1 0.02 (1+ ) −1
12
FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )25000 ( 0.02 )=
𝑟 12
12
1.00166666666666666120 −1
(1.00166666666)25000( 0.0016666666666
)
0.22119943386
= (25041.6666666666) ( ) = (25041.6666666)(132.719660371) = 3323521.50
0.001666666
0.02 52(10)
(1+𝑟)𝑛 −1 0.02 (1+ ) −1
52
FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )25000 ( 0.02 )=
𝑟 52
52
1.00038461538520 −1
(1.00038461538)25000( )
0.00038461538
0.22135579114
= (25009.6153845) (0.00038461538) = (25009.6153845)(575.525063885) = 14393660.49
2. Your dream is to buy a car worth P10,000,000 after you graduated college so that is
approximately 5 years from now. If you will deposit every end of the month.
A. How much should you deposit if you plan to deposit monthly to a bank with 2% monthly
interest?
B. How much should you deposit if you plan to deposit annually to a bank with 2% annual
interest?
C. How much should you deposit if you plan to deposit monthly to a bank with 2% annual
interest?
D. How much should you deposit if you plan to deposit annually to a bank with 2% monthly
interest?
0.02
𝐹𝑉 10000000 10000000( ) 16666.6666666
12
A. 𝑃𝑀𝑇 = (1+𝑟)𝑛 −1 = 0.02 12(5)
= 0.02 12(5) = 0.10507892653 = 𝑃158610.93
𝑟 (1+
12
) −1 (1+ ) −1
12
0.02
12
𝐹𝑉 10000000 10000000(.02) 200000
B. 𝑃𝑀𝑇 = (1+𝑟)𝑛 −1 = (1+.02)(5) −1
= (1+.02)(5) −1
= 0.1040808032 = 𝑃1921583.94
𝑟 .02
C. First convert 2% annual interest to monthly interest
𝑟 12 𝑟 12 1 𝑟
(1 + 0.02) = (1 + ) → 1.02 = (1 + ) → 1.0212 = 1 +
12 12 12
1
→ 𝑟 = 12 (1.0212 − 1) = 12(0.0016515813) = 0.01981897562
𝐹𝑉 10000000
𝑃𝑀𝑇 = 𝑛 =
(1 + 𝑟) − 1 0.01981897562 12(5)
𝑟 (1 + ) −1
12
0.01981897562
12
0.01981897562
10000000 ( ) 16515.8130167
= 12 = = 𝑃158682.61
12(5) 0.10408080318
0.01981897562
(1 + ) −1
12
D. First convert 2% monthly interest to annual interest
0.02 12
(1 + 𝑟) = (1 + ) → 1 + 𝑟 = 1.02018435568 → 𝑟 = 0.02018435568
12
𝐹𝑉 10000000 10000000(. 02018435568)
𝑃𝑀𝑇 = 𝑛 = =
(1 + 𝑟) − 1 (1 + .02018435568) − 1 (1 + .02018435568)(5) − 1
(5)
𝑟 . 02018435568
201843.5568
= = 𝑃1920875.70
0.10507892652
VII. Challenge
1. What will be the future value if you decide to deposit P1000 monthly then deposit an
additional of P4000 annually for 5 years [the deposit will be at every end of the period] to a
A. bank with annual compound interest rate of 2%?
B. bank with monthly compound interest rate of 2%?
C. bank with continuous compound interest rate of 2%?
2. How much should you deposit at a bank with monthly interest rate of 1.5% so that you can
withdraw P200 for every start of the month for 5 years?
Present value of annuity due
0.015 1−5(12)
[1−(1+𝑟)1−𝑛 ] 1−(1+
12
)
PV = 𝑃𝑀𝑇 + 𝑃𝑀𝑇 ( ) = 200 + 200 ( 0.015 ) = 200 +
𝑟
12
0.07105332721
200 ( )=
0.00125
11368.53235 𝑟𝑜𝑢𝑛𝑑 𝑢𝑝 𝑠𝑜 𝑡ℎ𝑎𝑡 ℎ𝑒 𝑐𝑎𝑛 𝑤𝑖𝑡ℎ𝑑𝑟𝑎𝑤 𝑎𝑡 𝑙𝑒𝑎𝑠𝑡 200 𝑎𝑡 𝑡ℎ𝑒 𝑙𝑎𝑠𝑡 𝑝𝑒𝑟𝑖𝑜𝑑
𝑠𝑜 11368.54
3. The double money challenge: You will deposit P1000 this month, then you will deposit
P2000 next month, then P4000 the month after that and so on and so forth. Now if you do
this to a bank with 1.8% monthly interest for 6 months. How much money will you have
after a year? (Assuming that you deposit money every start of the month)
0.018 6
(1+𝑟)𝑛 −1 0.018 (1+ ) −1
st 12
1 Annuity: FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )1000 ( 0.018 )=
𝑟 12
12
1.00156 −1 0.00903381758
(1.0015)1000( )=(1001.5) ( ) = (1001.5)(6.02254505066) = 6031.58
0.0015 0.0015
0.018 5
(1+𝑟)𝑛 −1 0.018 (1+ ) −1
nd 12
2 Annuity: FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )1000 ( 0.018 )=
𝑟 12
12
1.00155 −1 0.00752253377
(1.0015)1000( )=(1001.5) ( ) = (1001.5)(5.01502251688) = 5022.55
0.0015 0.0015
0.018 4
(1+𝑟)𝑛 −1 0.018 (1+ ) −1
rd 12
3 Annuity: FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )2000 ( 0.018 )=
𝑟 12
12
1.00154 −1 0.0060135135
(1.0015)2000( )=(2003) ( ) = (2003)(4.00900900338) = 8030.05
0.0015 0.0015
0.018 3
(1+𝑟)𝑛 −1 0.018 (1+ ) −1
th 12
4 Annuity: FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )4000 ( 0.018 )=
𝑟 12
12
1.00153 −1 0.00450675337
(1.0015)4000( )=(4006) ( ) = (4006)(3.00450225) = 12036.04
0.0015 0.0015
0.018 2
(1+𝑟)𝑛 −1 0.018 (1+ ) −1
st 12
5 Annuity: FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + )8000 ( 0.018 )=
𝑟 12
12
1.00152 −1 0.00300225
(1.0015)8000( )=(8012) ( ) = (8012)(2.0015) = 16036.02
0.0015 0.0015
0.018 1
(1+𝑟)𝑛 −1 0.018 (1+ ) −1
th 12
6 Annuity: FV = (1 + 𝑟)𝑃𝑀𝑇 ( ) = (1 + ) 16000 ( 0.018 )=
𝑟 12
12
1.00151 −1
(1.0015)16000 ( )=(1001.5)(1) = 16024
0.0015