posted by Barry on .
If the principal P = $900, the rate r = 4 1/2, and time t = 1 year, find the following: What is the amount of interest? What is the future value?
Interest for the first year is the principal, P=$900 multiplied by the rate of interest, r=0.045, multiplied by the number of periods, n=1.
The future value is the sum of the interest and the principal.
Note that in this case (n=1), the interest is the same whether it is simple or compound. In general, the question should specify whether it is simple interest or compound interest. In the latter case, the compounding period should also be specified (yearly, quarterly, monthly, etc.)