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Compound Interest

Published in: Mathematics
3,092 Views

Some important points to take care of Compound Interest

Atul T / Dehradun

7 years of teaching experience

Qualification: B.Tech in Electronics & Communication

Teaches: All Subjects, Physics

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  1. Solvinq Compound Interest Problems hat is Com ound 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". om ound Interest Formul 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 or A = future value of the deposit or amount. P = principal or amount of money deposited r = annual interest rate (in decimal form) t = time in years (Here amount is calculated for how many years the amount is calculated) If compound interest is calculated on half yearly basis then amount formula turns to If compound interest is calculated on quarterly basis then amount formula turns to
  2. If compound interest is calculated on different rate of interest then amount formula turns to 3/ If compound interest is calculated on monthly basis then amount formula turns to Some rare example . Example 1: If you deposit $5000 into an account paying 6% annual interest compounded monthly, how long until there is $8000 in the account? Soln - Here P = $5000 A = $8000 R = 6 % on monthly basis. so A = P (1+ r/12/100) 12t 1.6 = 1.005 12t Log 1.6 = 12t log 1.005 T = 7.9 years.
  3. ractice Problem 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 semi-annually,how long until there is $9350 in the account?