Posted by MIKE. on Monday, April 25, 2011 at 4:37pm.
Let
A=amount at the end of n periods
r=interest rate per annum, 0.06 for 6% p.a.
R=interest rate per period, in the form
(1+r/k) where k=number of periods per year
(1+0.06)=1.06 for 6% p.a., or
(1+0.06/12)=1.005 for 6% p.a. compounded monthly
Simple interest:
A=PRn
=10000*1.05=10500
Compound interest:
A=PR^n
=10000*(1+0.05/12)^12
=10000*1.051162
=10511.62
Compound interest, compounded monthly
Okay where did the 6% came in from?
The 6% is an example for the definition of the symbol R. Sorry if it misled you!
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