The formula for compound interest is:
Final amount or future value,
A = PR^n
where
P = principal
R = rate of interest per period, for example, 8% p.a. is 2/3% per month.
R is expressed as 1+rate, so for monthly compounding, R for 8% is 1+8/1200=1.00666667
n = number of periods, month in this case.
Using the following values, calculate the amount accumulated (future value):
Initial Principal = $9000
Interest Rate = 8%
Number of years = 9
Monthly Compounding
5 answers
This is what i came up with..Dont know if im right.please let me know.
FV= 9000 (1+0.08)9
= 1.08^9 = 1.9990
= 8000 (1.9990) = 17991.00
Future Value = $17, 991.00
FV= 9000 (1+0.08)9
= 1.08^9 = 1.9990
= 8000 (1.9990) = 17991.00
Future Value = $17, 991.00
What you've done is correct if it is compounded annually.
The question specifies compounded monthly.
What you need to do is to divide the interest into monthly interest rate, namely
R=1+0.08/12
and compound it over n=9*12=108 periods.
It will increase the final amount by about $450.
The question specifies compounded monthly.
What you need to do is to divide the interest into monthly interest rate, namely
R=1+0.08/12
and compound it over n=9*12=108 periods.
It will increase the final amount by about $450.
Got it..Thank you!
You're welcome!
2 answers