Question

Fernando wants to know how much interest he will earn on the $4000 he puts into a savings account. He has the interest rate. What other information does he need to know?

Answer 1

• the time period, and
• what compounding is used

Explanation:

You want to know what else Fernando needs to know to figure how much interest he will earn on $4000, if he has the interest rate.

Interest

There are two interest formulas. One is for simple interest, and one is for compound interest. So, one bit of information Fernando needs is whether interest is being compounded.

The formulas are ...

I = P·r·t . . . . . . . simple interest

I = P((1 +r/n)^(nt) -1) . . . . . . compound interest

If Fernando knows the invested amount P and the interest rate r, then he needs to know 'n' and 't' to be able to choose and use the correct interest formula.

Fernando needs to know ...

• the time period of concern
• the number of times per year interest is compounded