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value of money

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Find the compound amount if $6,400 is invested for 2 years at 12% compounded monthly. What difference would compounding daily make in this example?

  • value of money -

    Pt = Po(1+r)^n.

    r = 12% /12mo = 1%/mo = 0.01 = MPR = Monthly percentage rate expresed as a decimal.

    n = 12comp/yr * 2yrs = 24 compounding
    periods.

    Pt = $6400(1.01)^24 = 8126.30 When
    compounded monthly.


    Pt = Po(1+r)^n.

    r = 12% / 365days = 0.03288% = 0.00032877 = MPR = Daily percentage
    rate expressed as a decimal.

    n=365 comp/yr * 2yrs = 730 compounding
    periods.

    Pt = $6400(1.00032877)^730 = 8135.69
    When compounded daily.


    Difference=8135.69 - 8126.30 = $9.39.

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