I have a project where I'm supposed to calculate the interest of a given amount monthly and continuously, and then compare the methods. We were given a chart with each's month's principal amount (and we're given 1 number for each month of 1 year), and I want to calculate the interest for each month. In this case, what would I put as the "t" in the A=(1+(r/n))^nt formula?
If my initial amount were $18.60 and my APR is 2.5%, would the formula be:
A= 18.60(1+(.025/12))^(12)(1/12)
To calculate the interest for each month, you would need to determine the value of "t" in the formula A = (1 + (r/n))^nt. In this formula:
A = the future value of the investment or loan
r = the annual interest rate (expressed as a decimal)
n = the number of times the interest is compounded per year
t = the time period in years
Since you are calculating the interest on a monthly basis, you need to convert the time period into years. In your case, you mentioned that you have data for one year divided into months. To determine the value of "t", you need to consider the number of months on a yearly basis.
For example, if you have 12 months of data, you would divide it by the number of months in a year:
t = number of months / 12
So, in your case, "t" would be:
t = 12 months / 12 = 1 year
Since you have data for one year, you would use "t = 1" in the formula to calculate the interest for each month.