1. How many conversions are needed for a P500,000.00 principal to earn interest of P20,310.00 if it is invested at 4% compounded quarterly?
00:11
Problem #1
00:12
Given:
n = ?
P = P500,000
I = P20,310
F = 520,310
j = 4% or 0.04
m = 4 (quarterly)
00:12
Formula:
F = P(1 + i)^n
Solution:
520,310 = 500,000 (1 + 0.04/4)^n
520,310/500,000 = (1 + 0.04/4)^n
n = log 520,310/500,000 / log (1+0.04/4)
n = 4.00
00:13
Answer:
For the principal amount of P500,000 to earn an interest of P20,310, the conversion period must be 4.
00:21
Problem #2
00:22
2. Nana the mage promised his grandson Lesly that he would give him $6,000 8 years from today for graduating from high school. Assume money is worth 6% interest compounded semiannually. What is the present value of this $6,000?
00:27
Problem #2
00:27
Given:
P = ?
F = $6,000
t = 8 years
j = 6% or 0.06
m = 2 (semianually)
00:28
Formula:
F = P(1 + i)^n
P = F / (1 + i)^n
Solution:
P = 6,000 / (1 + 0.06/2)^(8)(2)
P = 3,739.00
00:29
Answer:
Now, the present value of Nana's gift is $3,739.00
00:37
Problem #3
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3. Katherine, owner of a local Subway shop, loaned $40,000 to Pete Hall to help him open a Subway franchise. Pete plans to repay Katherine at the end of 8 years with 6% interest compounded semiannually. How much will Katherine receive at the end of 8 years?
00:43
Problem #3
00:43
Given:
F = ?
P = $40,000
t = 8 years
j = 6% or 0.06
m = 2 (semianually)
00:44
Formula:
F = P(1 + i)^n
Solution:
F = 40,000 (1 + 0.06/2)^(8)(2)
F = 64,188.26
00:45
Answer:
Katherine will receive $64,188.26 at the end of 8 years
