Question

1. What is the formula for compound interest?

2. How many times are you compounding the interest rate if you compounded:
a. semi annually
b. monthly
c. annually

Answer 1

1. CI = P (1 +
`(r)/(100)` )^ n - P

CI = A - P

Where P is Principal

R is interest rate

n is number of years

2. a. Semi annually - four times in a year

b. Monthly - two times in a year

c. annually - once in a year

Explanation:

1. Money is said to be lent at compound interest , when the interest has become due at certain fixed period say, one year, half year, etc.., is given not paid to money lender, but is added to sum lent . The amount thus obtained become principal for next month and this process repeat until last period .

i.e CI = Final period - Initial period

or CI = A - P

or CI = P(1+
`(r)/(100)`) ^n - P

2. (a) Semi annually

A = P (1 +
`(r)/(4 * 100)` )^ n × 4

(b) Monthly

A = P (1 +
`(r)/(2 * 100)` ) ^ n × 2

(c) Annually

A = P (1 +
`(r)/(100)` ) ^ n