Question
Thu April 01, 2010 By:

COMPOUND INTEREST"URGENT PLS.."

Expert Reply
Fri April 02, 2010

Principal = 5000, Rate = 10% per annum, Time 1.5 yrs.

Now, it's compounded half yearly.

So if interest rate is 10% per annum, it's 5% per semiannually.

So compound interest is 5% per semiannually.

So amount at the end of half year = 5000 (1 + 0.05) = 5000(1.05) = 5250.

Now this amount is principal for next half year and so on.

So at the end of 1 yr = 5250x1.05 = 5512.5

and at the end of 1 and 1/2 year = 5512.5x1.05 = 5788.125

This can be calculated by simple formula.

Formula for calculating compound interest:

Where,

  • P = principal amount (initial investment)
  • r = annual nominal interest rate (as a decimal)
  • n = number of times the interest is compounded per year
  • t = number of years
  • A = amount after time t

 

Using this we can directly calculate,

A = (5000)(1 + 0.10/2)(1.5x2) = 5788.125

Similarly for second case,

A = (2000)(1 + 0.12/2)(1x2) = 2247.2

Regards,

Team,

TopperLearning.

 

 

 

 

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