Compound Amount

Compound Amount

A = P( 1 + i)n,

Where i = \frac{r}{m} and n = mt,

A is the future (maturity) value;

P is the principal;

 r is annual interest rate;

m is the number of compounding periods per year;

t is the number of years;

n is the number of compounding periods;

i is the interest rate per period.

Example:- Suppose 1000 is deposited for 6 years in an account paying 4.25% per year compounded annually.

 

(a)     Find the compound amount.

Solution:- In the formula above, P = 1000, I = .0425, and  n = 6(1) = 6.

A = P(1 + i)n

A = 1000(1.0425)6

Using a calculator, we get

 

A = 1283.68 the compound amount.

 

(b)     Find the amount of interest earned.

 

Soluion:-  Subtract the initial deposit from the compound amount.

Amount of interest = 1283.68 – 1000 = 283.68

 

 

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