COMPOUND INTEREST

AMOUNT AT CHANGING RATES

In a lot of cases, the rate of investments changes through time. How do you then
compute for the Compound Amount (Final Amount).

Approach 1: When this happens, the final amount, F, can be found by getting the final
amount each time there is a change then using that F to be the new Principal for the next
period with the new rate.

Approach 2: The other approach for solving for F is multiply the different “accumulation
factors” for each of the relevant periods.

F = P (1 + i)n1 (1 + i) n2 (1 + i) n3 … where the Accumulation Factor = (1 + i) n

Example 1:

Find the amount in 6 years if P2,500 is invested at 16% compounded semi-annually for
the first 4 years; and at 14% compounded quarterly in the last 2 years.

Approach 1
Given: For the 1st 4 years – j = .16 m=2 t=4

i = .08 n1 = 2(4) = 8

For the next 2 years – j = .14 m=4 t=2

i = .035 n1 = 2(4) = 8

Answer: F1 = P 4,627.33 … = P2

F2 = P 6,093.31

Approach 2
Solution: F = 2,500 (1 + .16/2)2(4)(1 + .14/4) 4(2)
Example 2:

A man invested P15,000 for 10 years. How much will be the final amount at the end of
10 years if the interest rate is 14% compounded quarterly for the first 3 years, 12% comp.
semi-annually for the next 4 years; and 11% comp. quarterly for the remaining 3 years.

Exercise 2.8.1

Solve the Following problems:

1. Rachel deposited P100,000 in a bank that gives 14% interest converted quarterly. How
much money would she have in 7 yrs and 6 months, if the interest rate increased to
15% converted quarterly 4 yrs later?
2. Find the accumulated amount if P200,000 is invested at 15% converted semi-annually
for 5 yrs and then changed it to 14 ½ % converted quarterly for the last 2 yrs.
3. An investment of P300,000 earns 15% effective for 2 yrs, then 14% compounded semi-
annually for 2 more yrs, then 13% compounded quarterly for another 1 yr. Find the
final amount at the end of 5 yrs.
4. Arthur made a deposit of P250,000 in a bank at 15% effective for 3 yrs, and then
changed it to 14% converted quarterly for the last 2 yrs. Find the accumulated amount
in 5 yrs.
5. On the January 1, 2000. Mariel Hazel Rae Invested P50,000. How much will she have in
5 yrs, if the 16% interest converted Semi-annually is in effect until April 1, 2002 and
15% converted quarterly in the remaining years?
6. A philanthropist bequeathed P1M to a hospital for the construction of a new wing.
The hospital got 10% effective in this investment for 3 yrs. The interest rate then was
changed to 9% converted semi-annually. If the wing was built 5 yrs after the gift was
received, how much in the fund at the time the wing was started?
7. P50,000 was invested for 6 yrs. During the first 2 yrs, the interest rate was 12 ½ %,
converted semi-annually. The rate then dropped to 12% converted quarterly during
the next 3 years and then went up to 13% converted quarterly for the remainder of
the time. What was the final amount?
8. Arthur made a time deposit of P250,000 for 180 days at 15% effective, then renewed it
for 90 days at 14% effective, and renewed it again for 60 days at 14%. Find the
accumulated amount in 11 months. How much was the interest Arthur received?
P. 87-88