# 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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