fhfhyfhhf

© All Rights Reserved

21 views

fhfhyfhhf

© All Rights Reserved

- CHAPTER 4 Interst and Equivalent.ppt
- DLL demoNEW.xlsx
- Compound Interest
- 117.2 Exponential Growth Decay -Cie Igcse Maths 0580-Ext Theory-qp
- Finance calculations
- Basic Math
- Kellison Reading Notes
- Interets T N
- Compound Interest Factor Tables
- Prac Ratio, Interest
- CHAPTER 4 TIME VALUE OF MONEY Part 1 Interst and Equivalent.ppt
- 6e Brewer Ch07 b Eoc (1)
- Fe170622067bd4097b6fefb9133141d6 Excel Essentials for Beginners Templates Workbook
- pt.docx
- Dino vs. Jardines
- Project
- Compound Interest Concept Questions for Working From
- Mrunal [Aptitude] Compound Interest Rate, Population Growth Without Formulas - Mrunal
- 06 E Compound-Interest-Handout EastKootenay
- SESSION_III_INTEREST RATE.ppt

You are on page 1of 10

What is Compound Interest? If you walk into a bank and open up a savings account you will earn interest on the money you deposit in

the bank. If the interest is calculated once a year then the interest is called simple interest. If the interest is calculated more than once

per year, then it is called compound interest.

Compound Interest Formula

The mathematical formula for calculating compound interest depends on several factors. These factors include the amount of money

deposited called the principal, the annual interest rate (in decimal form), the number of times the money is compounded per year,

and the number of years the money is left in the bank. These factors lead to the formula

FV = future value of the deposit P = principal or amount of money deposited r = annual interest rate (in decimal form) n = number of times

compounded per year t = time in years.

Example 1: If you deposit $4000 into an account paying 6% annual interest compounded quarterly, how much money will be in the account

after 5 years? Plug in the giving information, P = 4000, r = 0.06, n = 4, and t = 5. Use the order or operations to simplify the problem. If the

problem has decimals, keep as many decimals as possible until the final step. FV = 5387.42 Round your final answer to two decimals places.

After 5 years there will be $5387.42 in the account. n t r FV P 1 n = + 4(5) 0.06 FV 4000 1 4 = + 20 FV 4000(1.015) FV

4000(1.346855007)

Example 2: If you deposit $6500 into an account paying 8% annual interest compounded monthly, how much money will be in the account

after 7 years? Plug in the giving information, P = 6500, r = 0.08, n = 12, and t = 7. Use the order or operations to simplify the problem. If the

problem has decimals, keep as many decimals as possible until the final step. FV = 11358.24 Round your final answer to two decimals

places. After 7 years there will be $11358.24 in the account. Example 3: How much money would you need to deposit today at 9% annual

interest compounded monthly to have $12000 in the account after 6 years? Plug in the giving information, FV = 12000, r = 0.09, n = 12,

and t = 6. Use the order or operations to simplify the problem. If the problem has decimals, keep as many decimals as possible until the final

step. P = 7007.08 Divide and round your final answer to two decimals places. You would need to deposit $7007.08 to have $12000 in

6 years.

Example 4: If you deposit $5000 into an account paying 6% annual interest compounded monthly, how long until there is $8000 in

the account? Plug in the giving information, FV = 8000, P = 5000, r = 0.06, and n = 12. Use the order or operations to simplify the problem.

Keep as many decimals as possible until the final step. Divide each side by 5000. Take the logarithm of each side. Then use Property 5 to

rewrite the problem as multiplication. Divide each side by log 1.005. 94.23553232 12t Use a calculator to find log 1.6 divided by log 1.005.

t 7.9 Finish solving the problem by dividing each side by 12 and round your final answer. It will take approximately 7.9 years for

the account to go from $5000 to $8000. Example 5: If you deposit $8000 into an account paying 7% annual interest compounded quarterly,

how long until there is $12400 in the account? Plug in the giving information, FV = 12400, P = 8000, r = 0.07, and n = 4. Use the order or

operations to simplify the problem. Keep as many decimals as possible until the final step. Divide each side by 8000. Take the logarithm of

each side. Then use Property 5 to rewrite the problem as multiplication. Divide each side by log 1.0175. 25.26163279 4t Use a calculator to

find log 1.55 divided by log 1.0175. t 6.3 Finish solving the problem by dividing each side by 4 and round your final answer. It will take

approximately 6.3 years for the account to go from $8000 to $12400.

Example 6: At 3% annual interest compounded monthly, how long will it take to double your money? At first glance it might seem that this

problem cannot be solved because we do not have enough information. It can be solved as long as you double whatever amount you start

with. If we start with $100, then P = $100 and FV = $200. Plug in the giving information, FV = 200, P = 100, r = 0.03, and n = 12.

Use the order or operations to simplify the problem. Keep as many decimals as possible until the final step. Divide each side by 100. Take

the logarithm of each side. Then use Property 5 to rewrite the problem as multiplication. Divide each side by log 1.0025. 277.6053016 12t

Use a calculator to find log 2 divided by log 1.0025. t 23.1 Finish solving the problem by dividing each side by 12 and round your final

answer. At 3% annual interest it will take approximately 23.1 years to double your money

Practice Problems Now it is your turn to try a few practice problems on your own. Work on each of the problems below and then click on

the link at the end to check your answers. Problem 1: If you deposit $4500 at 5% annual interest compounded quarterly, how much money will

be in the account after 10 years? Problem 2: If you deposit $4000 into an account paying 9% annual interest compounded monthly, how

long until there is $10000 in the account? Problem 3: If you deposit $2500 into an account paying 11% annual interest compounded quarterly,

how long until there is $4500 in the account? Problem 4: How much money would you need to deposit today at 5% annual interest

compounded monthly to have $20000 in the account after 9 years? Problem 5: If you deposit $6000 into an account paying 6.5% annual

interest compounded quarterly, how long until there is $12600 in the account? Problem 6: If you deposit $5000 into an account paying 8.25%

annual interest compounded semiannually, how long until there is $9350 in the account

Problem

If you deposit $4500 into an account paying 7% annual interest compounded semi anualy , how

much money will be in the account after 9 years?

Result

The amount is $8358.7 and the interest is $3858.7.

Explanation

STEP 1: To find amount we use formula:

A = total amount

P = principal or amount of money deposited,

A=P(1+rn)nt

n = number of times compounded per year

t = time in years

After plugging the given information we have

AAAA=4500(1+0.072)29=45001.03518=45001.857489=8358.7

STEP 2: To find interest we use formula A=P+I, since A=8358.7 and P = 4500 we have:

A8358.7II=P+I=4500+I=8358.74500=3858.7

Problem

If you deposit $4500 into an account paying 7% annual interest compounded semi anualy , how

much money will be in the account after 9 years?

Result

The amount is $8358.7 and the interest is $3858.7.

Explanation

STEP 1: To find amount we use formula:

A=P(1+rn)nt

A = total amount

P = principal or amount of money deposited,

n = number of times compounded per year

t = time in years

In this example we have

After plugging the given information we have

AAAA=4500(1+0.072)29=45001.03518=45001.857489=8358.7

STEP 2: To find interest we use formula A=P+I, since A=8358.7 and P = 4500 we have:

A8358.7II=P+I=4500+I=8358.74500=3858.7

Problem

How much money would you need to deposit today at 8% annual interest

compounded monthly to have $1200 in the account after 12 years?

Result

The principal is $460.72.

Explanation

To find amount we use formula:

A = total amount

P = principal or amount of money deposited,

A=P(1+rn)nt

n = number of times compounded per year

t = time in years

After plugging the given information we have

120012001200PP=P(1+0.0812)1212=P1.00667144=P2.604631=12002.604631=460.

72

Problem

How much money would you need to deposit today at 12% annual interest

compounded quarterly to have $1000 in the account after 2 years?

Result

The principal is $789.41.

Explanation

To find amount we use formula:

A=P(1+rn)nt

A = total amount

P = principal or amount of money deposited,

r = annual interest rate

n = number of times compounded per year

t = time in years

In this example we have

After plugging the given information we have

100010001000PP=P(1+0.124)42=P1.038=P1.26677=10001.26677=789.41

Problem

Suppose that a savings account is compounded yearly with a principal of $1700. After 2

years years, the amount increased to$1910. What was the per annum interest rate?

Result

Interest rate per anum was 6%.

Explanation

To find interest rate we use formula:

A = total amount

P = principal or amount of money deposited,

A=P(1+rn)nt

n = number of times compounded per year

t = time in years

After plugging the given information we have

19101910(1+r1)2(1+r1)2ln(1+r1)22ln(1+r1)ln(1+r1)ln(1+r1)1+r11+r1r1

r=1700(1+r1)12=1700(1+r1)2=19101700=1.12353

of each

side=ln(1.12353)=ln(1.12353)=ln(1.12353)2=0.05824=e0.05824=1.05996935783=0.0599

693578315=0.05996935783156%

- CHAPTER 4 Interst and Equivalent.pptUploaded byCik Minn
- DLL demoNEW.xlsxUploaded byYvonne Alonzo De Belen
- Compound InterestUploaded byKevin
- 117.2 Exponential Growth Decay -Cie Igcse Maths 0580-Ext Theory-qpUploaded byshahul
- Finance calculationsUploaded byangy15
- Basic MathUploaded byJaded Jade
- Kellison Reading NotesUploaded bySuvajit Samanta
- Interets T NUploaded byEmad Aamer
- Compound Interest Factor TablesUploaded byNoraeddd
- Prac Ratio, InterestUploaded byPoonam Shankargouda
- CHAPTER 4 TIME VALUE OF MONEY Part 1 Interst and Equivalent.pptUploaded byPearl Loi
- 6e Brewer Ch07 b Eoc (1)Uploaded byAshish Bhalla
- Fe170622067bd4097b6fefb9133141d6 Excel Essentials for Beginners Templates WorkbookUploaded byAnshul Gupta
- pt.docxUploaded byJohn Paul Valencia
- Dino vs. JardinesUploaded byMikhailFAbz
- ProjectUploaded byGupta GurunadhGupta
- Compound Interest Concept Questions for Working FromUploaded byDony Gregor
- Mrunal [Aptitude] Compound Interest Rate, Population Growth Without Formulas - MrunalUploaded byRahul Gaurav
- 06 E Compound-Interest-Handout EastKootenayUploaded bylomipac
- SESSION_III_INTEREST RATE.pptUploaded byNurul Afifah Azzahrah
- Time Value of Money_Practical ApplicationsUploaded bymanoj_yadav735
- ECON Assign 1-15Uploaded byAnna Selma
- Lecture 6-Financial Functions and Excel ChartsUploaded byBaba
- Fe InvoiceUploaded byAhmad Rahhal
- Bhaiya.xlsxUploaded bynegalamadn
- The Central Bank of the Philippines, Petitioner,Uploaded byBingoheart
- 36.docxUploaded byKim van Elden
- A2.Garcia vs. ThioUploaded byArbie Mae Magale
- Busana1 ExcelUploaded byDanielle Nicole Atienza
- STU069_PKUploaded byAshish Batish

- cha 3Uploaded byNai Olegna
- Dance With My FatherUploaded byNai Olegna
- IPRAYER10Uploaded byNai Olegna
- Set-up Android SDKUploaded byNai Olegna
- AnnouncementUploaded byNai Olegna
- cha 2Uploaded byNai Olegna
- cha 1Uploaded byNai Olegna
- Bawal MagkalatUploaded byNai Olegna
- Computer System Servicing NC IIUploaded byEuropez Alaskha
- 01 Oral Communication in Context.pdfUploaded byFelix
- Android TutorialUploaded byMohammad Shoeb

- Chapter 5_ Time Value of Money Multiple Choice QuestionsUploaded byJeffrey Mak
- Interest Rate and Fixed IncomeUploaded bySARITHA S
- MathUploaded byThalat Mohd
- Week 4Uploaded byShubham Mishra
- Compound InterestUploaded bynikowawa
- 604-ch3Uploaded byHazel Grace Santos
- Syllabus-Math-Investment.docUploaded byMphilipT
- Ezy Math Tutoring - Year 10.pdfUploaded byVincents Genesius Evans
- Time Value of MoneyUploaded byRakschit Bhardwaj
- Compound InterestUploaded bysakthiprime
- Quant Notes.docxUploaded bybhoomi raithatha
- Chapter 3 Presentation ISE 311Uploaded bysong perez
- Money Wise - Reward Yourself Thru Financial KnowledgeUploaded byJustGentle
- R05 Time Value of Money IFT Notes.pdfUploaded byAbbas
- CHAPTER 4 Part 1 (Student) (1)Uploaded byreza
- ch14qaUploaded byHana Lee
- Bank testUploaded bykvivek000
- Kaplan University MM 255 All QuizUploaded byjustquestionanswer
- MTH302Uploaded byObaidullah Arif
- Module 2 - Time Value of MoneyUploaded byNarayanan Subramanian
- CSC 156 LAB 06 SU 09.docUploaded byLalit Bansal
- compoundinterest.pdfUploaded byybea
- CT1Uploaded byAkhil Garg
- Time Value FinanceUploaded byNitin Nath Singh
- A bookUploaded byMulenga Nzowa
- Quant BA PART 1 CaspuleUploaded byDiJohnson
- Computer Applications ICSE Sample Paper 5Uploaded bySarlaJaiswal
- Simple and Compound Interest ModuleUploaded byrandy
- Quantitative Aptitude fully covered topicsUploaded bySuneel Kumar