Name:

25 Learning Activity Sheet

Section and Year:

Date:
Activity Title: Compounding Once a Year
Learning Target
At the end of this session, the student is able to:
compute interest, maturity value, future value, and present value in compound interest environment; and
solve problems involving compound interests.

Learning Concepts

In modern business environment, the interest on money borrowed (lent or invested) is usually compounded.
Compound interest pays interest on the principal plus on any interest accumulated in previous years (Bradley, 2013).

Suppose you sold a car in a certain car company using a credit

card. How the car company benefits from this? If there is no interest
being taken, imagine what would happen.

The picture on the right is your old house. The economy in your
country has an inflation rate and you have to pay taxes while your
house waiting to purchase. How will you gain from selling this house?
If you sell this house without an interest over the years, is it good for
you given that you paid taxes for it? Imagine the situation

Formula in Compound Interest (Compounding Once a Year)

Future Value or Maturity Value Principal Value or Present Value
𝐹
𝐹 = 𝑃 (1 ⊢ 𝑟)𝑡 𝑃=
(1 + 𝑟)𝑡
Compound Rate Time in Years
𝐹 𝐹
𝑡 𝐹 𝑙𝑛 𝑝 𝑙𝑜𝑔 𝑝
𝑟 = √ −1 𝑡= =
𝑃 𝑙𝑛(1 + 𝑟) 𝑙𝑜𝑔(1 + 𝑟)
 Score:
Developing Mastery

Set A. Use the formula for compounding once a year. Let 𝑃 be the principal amount, 𝑟 be the compounded
interest, 𝑡 be the time in years, and 𝐹 future value of compounding once a year.

1. 𝑃 = 2500, 𝑟 = 2.5%, 𝑡 = 5 𝑦𝑒𝑎𝑟𝑠, 𝐹 =?

2. 𝐹 = 55000, 𝑟 = 5%, 𝑡 = 3 𝑦𝑒𝑎𝑟𝑠, 𝑃 =?

3. 𝐹 = 100,000, 𝑃 = 35,000, 𝑡 = 2.5 𝑦𝑒𝑎𝑟𝑠, 𝑟 =?

4. 𝐹 = 50,000, 𝑃 = 7,000, 𝑟 = 3%, 𝑡 =?

5. 𝑃 = 520,000, 𝑟 = 8%, 𝑡 = 4 𝑦𝑒𝑎𝑟𝑠, 𝐹 =?

Set B. Solve the unknown quantity in each number. Round your answer in nearest hundredths place. For
time, convert your answer in fraction if possible.

1. What will a Php 1,000,000.00 house cost 10 years from now if the inflation rate over the period
averages 3% compounded annually?

2. Rental costs for office space have been going up at 4.8% per year compounded annually for the past
5 years. If office space rent is now Php 222,400.00 per year, what was the rental cost 5 years ago?

3. In a suburb, housing costs have been increasing a 5.2% per year compounded annually for the past 8
years. A house worth Php 5,000,000.00 now would have had what value 8 years ago?

4. Mrs. Lorez wants all of her grandchildren to go to college and decides to help financially. How much
must she give to each child at birth if they are to have Php 50,000.00, 10 years later, assuming 6%
interest compoundedly.

5. Mora recently immigrated to the United States from Philippines. His family has agreed to help him set
aside the cash needed to open a small bakery in 2 years once he completes a program at a culinary
institute. Find the amount they must deposit today in an investment account expected to yield 5%
compounded annually if he needs Php 500,000.00 to open the shop in 2 years.

Sources:
Barnett (2015), College Mathematics for Business, Economics, 13th edition, page 154-156
Clendenen (2015), Business Mathematics, 13th edition, page 423