Derive the formula of calculating the R.D. account
Answers
M = P*(1+R/N)^Nt
Where
M = Maturity amount.
P = Principal amount or the installment amount
R = Interest rate in decimal, convert interest rate into decimal by dividing it by 100
T = Time duration in months
t = Time duration in years
N= compounding frequency (since it is quarterly, it will be 4)
This formula is the formula for calculating compound interest. Banks generally compound interest quarterly on deposits. However, to calculate compound interest on recurring deposit, the balance at the beginning of the quarter is considered. So, if you open a recurring deposit between a quarter, simple interest is calculated for the months till a new quarter begins and from the new quarter, compound interest is calculated. This is why there may be a slight difference between manual calculation and the amount that a holder may receive on maturity