future amount

How long will P2.5M amounts to P4.5M at 8% compounded quarterly?

By the conditions of a will, the sum of P2.5M is left to a girl to be held in a trust fund by her guardian until it amounts to P4.5M. When will the girl receive the money if the fund is invested at 8% compounded quarterly?

A.   7 years C.   7.42 years
B.   6.8 years D.   7.25 years


Compound Interest

In compound interest, the interest earned by the principal at the end of each interest period (compounding period) is added to the principal. The sum (principal + interest) will earn another interest in the next compounding period.

Consider \$1000 invested in an account of 10% per year for 3 years. The figures below shows the contrast between simple interest and compound interest.

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