Answer to Question #178041 in Financial Math for Kim Galvez

Question

Solve the following problems. Show your solutions to support your answer.

1. At what rate will ₱ 6,500 accumulate to ₱ 27,000 for 3 years and 6 months, if compounded every 5 

months?

2. Accumulate ₱ 25,000 for 2 years and 5 months at 6 ½%, compounded every two months.

3. Briefly explain the difference between a “ 7% compounded monthly for a year” and a “7% simple 

interest for a year.”

Answer 1

1. Rate is $r=42/5×((27,000/6,500)^{1/42} −1)=0.2897$

or 28.97%.

2. 25,000 for 2 years and 5 months at 6 ½%, compounded every two months is:

$FV = 25,000×(1 +0.065/6)^{29/2} = 29,227.63.$

3. A “ 7% compounded monthly for a year” is $P×(1 + 0.07/12)^{12}$ and a “7% simple

interest for a year” is just P×1.07.