Need Compound interest math help

Recommended Posts

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

Share on other sites

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
Share on other sites

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)

Best regards.

mpcTutor

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

----------------------------------------------------------

SAT/ACT, AP Calculus, AP Physics, IIT JEE Test Prep.

----------------------------------------------------------

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

Share on other sites

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

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account. ×   Pasted as rich text.   Paste as plain text instead

Only 75 emoji are allowed.