compounding interest formula it’s like math, but not really
Post on 17-Jan-2016
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Compounding Interest Formula
It’s like Math, but not really
Compounding Formula:
A = P(1+r/n)nt
Compounding Formula:
Example 1
1) Goal: You want to have $10,000 saved in five years.
How much principal would you need to put away in a bank account offering a 4% APR and compounding monthly in order to reach that goal?
A = P = r = n = t =
Example 1A = P(1+r/n)nt
A = $10,000P = ??r = 4% APRn = 12 monthst = 5 years
1) Goal: You want to have $10,000 saved in five years.
How much principal would you need to put away in a bank account offering a 4% APR and compounding monthly in order to reach that goal?
Example 1A = P(1+r/n)nt
10000 = P(1+.04/12)^6010000 = P(1.221)P = 10000 / 1.221
P = $8,190.01
A = $10,000P = ??r = 4% APRn = 12 monthst = 5 years
Example 2
1) Your 3 year investment of $20,000 received 5.2% interested compounded semi annually.
What is your total return?
A = P = r = n = t =
Example 2A = P(1+r/n)nt
A = ??P = 20000r = 5.2% APRn = 2 times per yeart = 3 years
Your 3 year investment of $20,000 received 5.2% interested compounded semi annually.
What is your total return?
Example 2A = P(1+r/n)nt
A = 20000(1+.052/2)^6A = 20000(1.166)
A = $23,320
A = ??P = 20000r = 5.2% APRn = 2 times/yrt = 3 years
Your Turn:
Solve this Problem:Challenge: You have $8,250 to invest, and you won’t need the money until five years from now. You decide you will put the money into a bank account compounding monthly for that period of time. If the account pays 2% APR, how much will you have in your account at the end of five years?
Your Turn:
Solve this Problem:Challenge: You have $8,250 to invest, and you won’t need the money until five years from now. You decide you will put the money into a bank account compounding monthly for that period of time. If the account pays 2% APR, how much will you have in your account at the end of five years?
Your Turn: A = P(1+r/n)nt
A =P = r = n =t =
Challenge: You have $8,250 to invest, and you won’t need the money until five years from now. You decide you will put the money into a bank account compounding monthly for that period of time. If the account pays 2% APR, how much will you have in your account at the end of five years?
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