The compound interest depends on the time period for which the amount is invested/borrowed. The time interval for the calculation of interest can be a day, a week, a month, quarterly, or half-yearly. The more the time interval is the less the compound interest. For example, we get more...
Example #1 A businessperson invests 20000 dollars in a local bank paying 6% interest every year. How much money does the businessperson have in his account after 8 years? Solution: In this scenario, the interest rate r is compounded or "calculated and added to the account" only once per ...
CompoundInterest Example:Youdeposit$7500inasavingsaccountthathasarateof6%.Theinterestiscompoundedmonthly.a.Howmuchmoneywillyouhaveafterfiveyears?b.Findtheinterestafterfiveyears.Solution:a.PrincipalPis$7500,ris6%or0.06,tis5,andnis12sinceinterestisbeingcompoundedmonthly.Substitutingthisintothecompoundinterestformula...
Example 2. At the end of 1980, I deposited $1,000 in an account that earns 7.3% interest, compounded yearly. How much did I have at the end of 2000, as- suming that no further deposits or withdrawals are made? Solution. My funds were on account from Dec. 31, 1980 to Dec. 31,...
The interest earned is given by I=A−P. The effective rate when interest is compounded periodically is ie=1+rnn−1. 11.2.5. For the future amount of a principle investment with interest compounded continuously, A=Pert. The interest earned is given by I=A−P. The continuous effective...
The first example is the simplest, in which we calculate the future value of an initial investment. Question You invest $10,000 for 10 years at the annual interest rate of 5%. The interest rate is compounded yearly. What will be the value of your investment after 10 years? Solution Firstl...
Example 1 What will be the final total amount of money after three years on an original investment of $1,000 if a 12% annual interest rate is compounded yearly? First, circle what you must find—final total amount of money.Note also that interest will becompounded each year.Therefore, the...
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Example Problem 1:How much amount of compound interest payable on a principal sum of 10,000 USD at 9% rate of interest for the total period of 3 years with yearly compounding frequency or period?Solution:P = 10,000 USD on yearly compounding frequencyR = 9%n = 3 Yearsapply these above...
If we deposit principal $P for n periods with the interest compounded at r % per period, then the amount $A can be calculated by the following formula: A = P (1 + r %)n Let’s consider the following example. (a) If the interest rate is compounded yearly, then Raymond deposit...