Mathematics, 12.12.2020 17:00 autumperry3599
Simple question about monthly compound interest, please help:
The formula we must use in this course to calculate compound interest is: A=P(1+i)^n
(A = the final amount of the investment, P = Principal/amount invested, i = interest rate per compounding period (as decimal), n = total number of compounding periods in the investment).
The period of investment is one year.
My monthly contribution is $200. This comes to $2400 yearly contribution (200 x 12 = 2400).
I need to calculate my yearly interest. I get 5% interest, compounded monthly.
Please verify if my thought process is correct:
For A=P(1+)^n, we know that n = 12, because the interest is compounded monthly over one year. Now to find i:
i = Rate (r) ÷ Number of compounds per year
= 0.05 ÷ 12
= 0.004
Now to solve the final amount:
A = P(1 + i)^n
A = $2400(1 + 0.004)^12
A = $2400(1.004)^12
A = $2400(1.0490702075)
A = $2517.77
Earning a compound interest monthly for one year results in $2,517.77.
Interest = Final amount – Principal
= $2517.77 - $2400
= $117.77
The yearly interest comes to $117.77.
Now, I need to find the monthly interest.
But I can't figure out the formula.
Please help me figure it out. I tried, but I don't think it's right, should it be number 1:
A = P(1 + i)^n
A = $200(1 + 0.004)^12
A = $200(1.004)^12
A = $200(1.0490702075)
A = $209.81
The final amount comes to $209.81.
Interest = Final amount – Principal
= $209.81 - $200
= $9.81
The monthly interest comes to $9.81.
Or number 2:
Monthly interest = Yearly interest ÷ Months in a year
= $117.77 ÷ 12
= $9.81
Not sure if I'm overcomplicating it or just way off. Thanks!!
Answers: 3
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Simple question about monthly compound interest, please help:
The formula we must use in this cours...
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