A = P( 1 + i)n,
Where i = 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