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October 22, 2014

October 22, 2014

Posted by **mike...** on Saturday, April 16, 2011 at 10:24pm.

Initial Principal = $9000

Interest Rate = 8%

Number of years = 9

Monthly Compounding

- geometry -
**MathMate**, Sunday, April 17, 2011 at 8:33amThe formula for compound interest is:

Final amount or future value,

A = PR^n

where

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 10:04amThis 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 10:17amWhat 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

R=1+0.08/12

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 11:52amGot it..Thank you!

- geometry :) -
**MathMate**, Sunday, April 17, 2011 at 1:01pmYou're welcome!

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