Using the following values, calculate the amount accumulated (future value):
Initial Principal = $9000
Interest Rate = 8%
Number of years = 9
geometry - MathMate, Sunday, April 17, 2011 at 8:33am
The formula for compound interest is:
Final amount or future value,
A = PR^n
P = principal
R = rate of interest per period, for example, 8% p.a. is 2/3% per month.
R is expressed as 1+rate, so for monthly compounding, R for 8% is 1+8/1200=1.00666667
n = number of periods, month in this case.
geometry - mike..., Sunday, April 17, 2011 at 10:04am
This is what i came up with..Dont know if im right.please let me know.
FV= 9000 (1+0.08)9
= 1.08^9 = 1.9990
= 8000 (1.9990) = 17991.00
Future Value = $17, 991.00
geometry - MathMate, Sunday, April 17, 2011 at 10:17am
What you've done is correct if it is compounded annually.
The question specifies compounded monthly.
What you need to do is to divide the interest into monthly interest rate, namely
and compound it over n=9*12=108 periods.
It will increase the final amount by about $450.
geometry - mike..., Sunday, April 17, 2011 at 11:52am
Got it..Thank you!
geometry :) - MathMate, Sunday, April 17, 2011 at 1:01pm