I need to understand the formula for Compounded Interest along with the following problems to resolve.

Please show all work. Thank you. Assume a firm deposits $2500 into a money mkt acct., The acct currently pays 0.7% whats the account balance yr 1?

Answers: Amount

= P {1 + (r/100)}n = 2500 {1 + (0.7/1200)}12 = 2500 {1 + 0.0005833)}12 = 2500 {1.0005833}12 =2500 X 1.01943 = $ 2548.575

P is the principal (the money you start with, your first deposit) r is the annual rate of interest as a decimal (5% means r = 0.05) n is the number of years you leave it on deposit A is how much money you will accumulate after n years, including interest. If the interest is compounded once a year: If the interest is compounded once a year: A = P(1 + r)n If the interest is compounded q times a year: A = P(1 + r/q)nq Compound interest formula: C.I = P(1 + r)n - 1

k= interest rate

n= days interest will be applied to

=

Note: it is assumed that the interest in the question is monthly.

2 people combine their money of $1m260 + $975 in an account earning 2% compounded monthly what will be the account balance after Ans incomplete question Q. how much is earned at 5% annually for $1.3Million over the course of 25 years compounded. Ans. Amount = P x ert = 1,300,000 x e0.05x25 = 1,300,000 x e1.25 = 1,300,000 x 3.3201 = $4,316,130

Bank 1 offers - 3% annual compounded semi-annually We Have P = 12000, i=3%, m=2 So A = P*(1+i/m)^m = 12000*(1+3%/2)^2 = $12,362.70 Bank 2 offers - 2.75% compounded continuously So A = 12000*(1+2.75%) = $12,330.00 So over 1 Year, Bank 2 offers better return ................Ans (1) 2. Rate = 6%, Period nper = 18yrs, Amt reqd at 18 yrs =FV=150,000 What is annual payment PMT We use excel PMT function o find qannual payment =PMT(Rate,NPER,PV,FV) ie PMT(6%,18,0,150000) = $4,853 So anual contribution is $4,853 .................Ans (2)

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