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?