How to find compound interest?
Answers
Answer:
Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one. The total initial amount of the loan is then subtracted from the resulting value
COMPOUND INTEREST:
Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one. The total initial amount of the loan is then subtracted from the resulting value.
Compound interest eq.= P(1 + r/n)nt
A = Accrued Amount (principal + interest)
P = Principal Amount
I = Interest Amount
R = Annual Nominal Interest Rate in percent
r = Annual Nominal Interest Rate as a decimal
r = R/100
t = Time Involved in years, 0.5 years is calculated as 6 months, etc.
n = number of compounding periods per unit t; at the END of each period
Example:
I have an investment account that increased from $30,000 to $33,000 over 30 months. If my local bank offers savings account with daily compounding (365), what annual interest rate do I need to get from them to match the return I got from my investment account?
"Calculate Rate (R)" r = n[(A/P)1/nt - 1] and R = r*100.
Total P+I (A): $33,000
Principal (P): $30,000
Compound (n): Daily (365)
Time (t in years): 2.5 years (2.5 years is 30 months)
Your Answer: R = 3.8126% per year
Interpretation: You will need to put $30,000 into a savings account that pays a rate of 3.8126% per year and compounds interest daily in order to get the same return as your investment account.