FINDING THE INTEREST RATE

In the basic formula F = P , there are four variables involved, the final compound
amount F, the principal P, the interest rate and the conversion period n. If F, P, and n are given, the
interest rate can be determined by using the formula, by means of interpolation and by means of
logarithm.
Example:
(Use of the formula)
If P5,000 amounts to P7,000 in 5 years with interest compounded quarterly, what is the
nominal rate of interest?
Solution:
Given: P = P5,000
F = P7,000
t = 5 years
m = 4
Find: j
n = mt
= 4(5) = 20

From F = P

= 1.400

Extracting the 20th root of both sides, we have:

Then, 1 + i =

1+ i =

Using Scientific Calculator

i = -1

i = 1.0169659 – 1
 i = 0.0169659

but i =

therefore j = mi
= 4 (0.0169659) x 100
= 6.78%
FINDING THE TIME

When the principal, amount, and rate are known, the time could be determined. To determine
the time, use the interpolation method or the logarithm method.
Example:
How long will it take P2,000 to amount to P3,500 at 9% compounded quarterly?
Solution:
Given: P = P2,000
F = P3,500
j = 9%
m = 4
i = 9%/4 = 0.0225

Find: n and t

Using interpolation method:

From the formula F =P

(1 + .0225)n =

n
(1 + .0225) = 1.75

Log (1.0225)n = Log 1.75

n Log (1.0225) = Log 1.75

n = Log 1.75 ÷ Log 1.0225

n = (0.243038049) ÷ 0.009663332
n = 25.150543208
n = mt

t = n ÷ m

t = 25.150543208 ÷ 4

t = 6.29 years