Answer:
P: the principal, the amount invested
A: the new balance
t: the time
r: the rate, (in decimal form)
Ex1: If $1000 is invested now with simple interest of 8% per year. Find the new amount after two years.
P = $1000, t = 2 years, r = 0.08.
A = 1000(1+0.08(2)) = 1000(1.16) = 1160
Compound Interest:
P: the principal, amount invested
A: the new balance
t: the time
r: the rate, (in decimal form)
n: the number of times it is compounded.
Ex2:Suppose that $5000 is deposited in a saving account at the rate of 6% per year. Find the total amount on deposit at the end of 4 years if the interest is:
P =$5000, r = 6% , t = 4 years
a) simple : A = P(1+rt)
A = 5000(1+(0.06)(4)) = 5000(1.24) = $6200
b) compounded annually, n = 1:
A = 5000(1 + 0.06/1)(1)(4) = 5000(1.06)(4) = $6312.38
c) compounded semiannually, n =2:
A = 5000(1 + 0.06/2)(2)(4) = 5000(1.03)(8) = $6333.85
d) compounded quarterly, n = 4:
A = 5000(1 + 0.06/4)(4)(4) = 5000(1.015)(16) = $6344.93
e) compounded monthly, n =12:
A = 5000(1 + 0.06/12)(12)(4) = 5000(1.005)(48) = $6352.44
f) compounded daily, n =365:
A = 5000(1 + 0.06/365)(365)(4) = 5000(1.00016)(1460) = $6356.12