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High School Mathematics Grade 10-12

High School Mathematics Grade 10-12

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Published by Todd
The Free High School Science Texts: Textbooks for High School Students Studying the Sciences Physics Grade 12 Copyright c 2007 “Free High School Science Texts” Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1.2 or any later version published by the Free Software Foundation; with no Invariant Sections, no Front- Cover Texts, and no Back-Cover Texts. A copy of the license is included in the section entitled “GNU Free Documentation License” Webpage: http://www.fhsst.org/
The Free High School Science Texts: Textbooks for High School Students Studying the Sciences Physics Grade 12 Copyright c 2007 “Free High School Science Texts” Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1.2 or any later version published by the Free Software Foundation; with no Invariant Sections, no Front- Cover Texts, and no Back-Cover Texts. A copy of the license is included in the section entitled “GNU Free Documentation License” Webpage: http://www.fhsst.org/

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Published by: Todd on Dec 18, 2008
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10/14/2014

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It is easy to show that this formula works even when n is a fraction of a year. For example, let

us invest the money for 1 month, then for 4 months, then for 7 months.

Closing Balance after 1 month = P(1 +i) 1

12

Closing Balance after 5 months = Closing Balance after 1 month invested for 4 months more

= [P(1 +i) 1

12

] 4

12

= P(1 +i) 1

12+ 4
12

= P(1 +i) 5

12

Closing Balance after 12 months = Closing Balance after 5 month invested for 7 months more

= [P(1 +i) 5

12

] 7

12

= P(1 +i) 5

12+ 7
12

= P(1 +i)12

12

= P(1 +i)1

which is the same as investing the money for a year.

Look carefully at the long equation above. It is not as complicated as it looks! All we are doing

is taking the opening amount (P), then adding interest for just 1 month. Then we are taking
that new balance and adding interest for a further 4 months, and then ﬁnally we are taking the

new balance after a total of 5 months, and adding interest for 7 more months. Take a look

again, and check how easy it really is.

Does the ﬁnal formula look familiar? Correct - it is the same result as you would get for simply

investing P for one full year. This is exactly what we would expect, because:

1 month + 4 months + 7 months = 12 months,

which is a year. Can you see that? Do not move on until you have understood this point.

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