Question

Set up the formula to find the balance after 8 years for a total of $12,000 invested at an annual

interest rate of 9% compounded daily.

Answer 1

A = 12000(1.0002466)²⁹²⁰

Explanation:

The formula for the amount after compound interest is:
`A = P(1 + i)^(n)`

"A" is the amount, or balance.

"P" is the principal, or starting amount/investment.

"i" is the interest rate for each compounding period.

"n" is the number of compounding periods.

The interest rate each compounding period, "i", is calculated with i=r/c

"r" is the annual interest rate in decimal form.

"c" is the compounding frequency. (If compounded annually, c=1. If monthly, c=12.)

The number of compounding periods, "n", is calculated with n=tc.

"t" is the time in years.

"c" is the compounding frequency.

In this problem:

t = 8

P = 12,000

r = 9%, or r = 0.09 for decimal form.

c = 365

Calculate "i" and "n".

i = r/c

i = 0.09/365

i = 0.00024657534

i ≈ 0.0002466

n = tc

n = 8(365)

n = 2920

Substitute these back into the formula:

A = P(1 + i)ⁿ

A = 12000(1+0.0002466)²⁹²⁰

A = 12000(1.0002466)²⁹²⁰