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COMPOUND INTEREST

Brief Examples to help with problems.

COMPOUND INTEREST FORMULA

•  $A=P\left(1+\frac{r}{n}\right)^{nt}$  

• P=Principle  R = Rate  N = Number of times compounded per year    T = Time in years

• Annually  n = 1      Semiannually  n = 2                      Monthly n = 12   Daily n = 365  Quarterly = 4

EXAMPLE

JoJo deposits $1500 into a bank account that pays 3.75% interest compounded semi annually. How much money will he have after 10 years?

SOLUTION:

P = 1500

r = 3.75%

n = 2 (semianually)

t = 10 years

EXAMPLE

JoJo deposits $1500 into a bank account that pays 3.75% interest compounded semi annually. How much money will he have after 10 years?

 $A=1500\left(1+\frac{3.75\%}{2}\right)^{20}$  

Steps to follow on calculator
1. 3.75% = 0.0375
2.  0.0375 / 2 = 0.01875
3.  1 + 0.01875 = 1.01875
4.  1.01875 x^y 20 = 1.4499480257 (x^y might be different on your calc)
5.  1.4499480257 * 1500 = 2,174.92