CHAPTER 2

COMPOUND INTEREST
2.1 Compound Interest Formula
Compound Amount Formula : i
j F = P ( 1 + i )n n = tm
m
Compound Present Value Formula : P = F ( 1 + i )-n
j = nominal rate m = frequency of conversion n = time multiply by frequency of conversion
Frequency of Conversion : annually = 1 semi-annually = 2 quarterly = 4
Monthly = 12 daily or continuously = 365
2.2 Compound Amount with a Fractional Time Period : F = P ( 1 + i )n
2.3 Compound Present Value with a Fractional Time Period : P = F ( 1 + i )-n
2.4 Continuous Compounding
Compound Amount Formula using Continuous Compounding : F = Pejt (e = 2.71828)
Compound Present Value Formula using Continuous Compounding : P = Fe-jt

2.5 Varying Interest Rates

Compound Amount Formula : F = P ( 1 + i1 )n1 ( 1 + i2 )n2 ( 1 + i3 )n3..........
with Varying Interest Rates
Compound Present Value Formula : P = F ( 1 + i1 )-n1 ( 1 + i2 )-n2 ( 1 + i3 )-n3..........
with Varying Interest Rates
2.6 Finding the Time : n
  F 
t log
mP
n
log1  i 
2.7 Determining the Interest Rates
1/n
Interest Rate/Period : -1 F
i  Nominal Rate : j = im
P
2.8 Comparing Types of Interest Rates
Effective rate : w = (1 + i )m - 1 Nominal Rate : i = ( 1 + w ) 1/m - 1
(1  i )  1 Simple Interest Rates :
r
t
Nominal Rate : i = ( 1 + rt )1/m - 1
j = im
2.10 Equations of Values : Obligations = Payment

CHAPTER 3
 ORDINARY ANNUITY
3.1 The Ordinary Annuity Formula: (1  i )n  1
SR
i
S = amount of annuity R = regular
payment
A = present value of annuity or value of all payment at the beginning of the term
1  (1  i )  n Ordinary Annuity Present Value
AR
i
Formula :
3.2 Finding the Periodic Payment
R
Si Periodic Payment of an Ordinary
(1  i ) n  1
Annuity : payment/save plus interest
R
Si And
1  (1  i ) n
loan less interest
3.4 Find the Number of Payments
Number of Payments When the Amount, S, of an Ordinary Annuity is given :
 Si  
log    1
n  R   Number of Payments When the
log(1  i )
Present Value, A, of an Ordinary
Annuity is given :
  Ai  
log 1    
n   R 
 log(1  i )

CHAPTER 4
OTHER ANNUITIES
4.1 The Annuity Due Formula

SR
1  i  n  1 1  i  Amount of an Annuity Due
i
denoted as :
1  1  i   n
A R 1  i  Present Value of an Annuity Due
i
denoted as:
4.2 The Deferred Annuity Formula
1  1  i   n Present Value of a Deferred
R 1  i   d
i
Annuity:
1  1  i   n Amount of a Deferred Annuity
R 1  i 
i
:

CHAPTER 7
DEPRECIATION
7.1 Uniform Depreciation Method
CS Straight-Line Depreciation Method :
D
i
The Straight-Line Depreciation 100%
i
Rate =
Straight-Line Depreciation Table
Year Depreciation Accumulated Depreciation Book Value
840,000
1 98,750 98,750 741,250
2 98,750 197,500 642,500
3 98,750 296,250 543,750
4 98,750 395,000 445,000
5 98,750 493,700 346,250
6 98,750 592,500 247,500
7 98,750 691,250 148,700
8 98,750 790,000 50,000