how to derive the formula for compound interest
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Step-by-step explanation:
The Formula
We have been using a real example, but let us make it more general by using letters instead of numbers, like this:
PV x (1+r)^n = FV
(Compare this to the calculation above it: PV = $1,000, r = 0.10, n = 5, and FV = $1,610.51)
When the interest rate is annual, then n is the number of years
When the interest rate is monthly, then n is the number of months
and so on
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