# Need Compound interest math help

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really need some help with this problem, we were able to work the others, but this one is stumping us:

Find the amount that savings account of \$55,000 would yield at 8% compounded every 3 months over a period of 2 years.

Thanks

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really need some help with this problem, we were able to work the others, but this one is stumping us:

Find the amount that savings account of \$55,000 would yield at 8% compounded every 3 months over a period of 2 years.

Thanks

If 8% is the nominal rate per year, and it compounds four times a year, then the rate per period is 8%/4... which is 2%... and over two years it would compound 8 times.

So you're starting with 55000, and multiplying it by 1.02 (which is like adding 2%) 8 times. As an equation it's 55000(1.02)^8 -- that gets you the ending balance, and you can subtract out the original principal to see what it yielded.

Edited by KAR120C
corrected P
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really need some help with this problem, we were able to work the others, but this one is stumping us:

Find the amount that savings account of \$55,000 would yield at 8% compounded every 3 months over a period of 2 years.

Thanks

The previous poster already gave the solution. Here are details.

Simply follow the same logic that you used for other problems solved correctly.

If

P = Present amount = 55000

i% = % interest rate per period (Note that I deliberately wrote per period and not per year ) = 8%/4 = 2%

n = No. of periods for which P is in the saving account = 2 years x 4 period per year = 8

S = Lump sum amount yielded at the end of n period = To be found

yield = interest paid on investment

Then

S = P( 1 + i%)^n (One can easily derive this formula with 7th grade algebra background. Note 2% = 2 per cent = 2/100 = 0.02))
= 55000 ( 1 + 0.02)^8

= 64441.27

Yield = 64441.27 - 55000 = 9441.27 (Answer)

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mpcTutor

http://www.mpclasses.com/ContactUS.htm

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US Central Time:1:49 PM 9/16/2010

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Thank you so much!!!! We were so close but just couldn't put our fingers quite on it.

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