Asked by Kaye

If I was given an amount of money for 1 month, and I wanted to compound its interest monthly, which formula would I need to use?

My interest rate is 2.5%. I want to compound monthly (so n=12). But I want to find the amount after compounding interest monthly FOR THAT single month. The amount I'm give (which I think would be P) is 18.60, and is specifically for the month of January.

If I'm using the A=P(1+(r/n))^nt how would I plug my information in?

Like this: A=18.6(1+(.025/12))^(12)(1/12)
Or
Like this: A=18.6(1+(.025/12))^(12)(1)
Answered by Reiny
don't make it look so complicated
i = .025/12 = .00208333.. (I use my calculator's memory to store such numbers, don't round them off yet)

amount = 18.6(1.00208333...)^1 , for 1 month
= 18.6(1.00208333..
= $ 18.64

Wow, we gained 4 cents interest !
Answered by Kaye
THANK YOU SO MUCH! :)
Answered by Kaye
Actually, one more quick question. Then if I were going to compound the interest continuously, would it be
A=18.6e^(.025)(1/12)
Answered by Reiny
yes, it would be 18.6387
since the time is so short, it is no surprise that the two answers are the same
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