Explain about C.I. calculated Yearly, Half Yearly, Quarterly and how does it affect the Rate of Interest.
Answers
Answer:
Step-by-step explanation:
Yearly
Compound Interest is the interest calculated on the cumulative amount, rather than beingcalculated on the principal amount only. Amount, A = P [1 + (R / 100)]n, where P is the principal, R is the rate of interest per unit time period and n is the time period.
Halfly
If interest is compounded half yearly, rate of interest = R / 2 and A = P [ 1 + ( {R / 2} / 100 ) ]T, where 'T' is the time period. For example, if we have to calculate the interest for 1 year, then T = 2. For 2 years, T=4
Quarterly
In such cases we use the following formula for compound interest when the interest is calculated quarterly. Here, the rate percent is divided by 4 and the number of years is multiplied by 4. Note: ... CI = A - P = P{(1 + r4100)4n - 1} is the relation among the four quantities P, r, n and CI.
How does it affect the rate of interest?
Yearly
The impact of a higher or lower interest rate is fairly straightforward. A higher rate means more interest gets added each cycle. Similarly, the more often interest compounds, the faster the growth. For example, here's how different frequencies impact the growth of $1,000 with a 10% interest rate.
Half Yearly
If compounding period is not annual, rate of interest is divided in accordance with the compounding period. For example, if interest is compounded half yearly, then rate of interest would be R / 2, where 'R' is the annual rate of interest.
Quarterly
More Frequent Compounding Equals Higher ReturnsAs the number of compounding periods increases, so does the effective annual interest rate. Quarterly compounding produces higher returns than semi-annual compounding,monthly compounding more than quarterly, and daily compounding more than monthly.