Compound Interest Formula
FV = P (1 + r/n)^n*t
- FV- Your future value after interest
- P- Principle (the money you start with)
- r- Nominal rate (the percentage of interest)
- n- # of compounding ( how often your interest accumulates)
- t- term (how long your interest lasts)
Example: $1,000 investment, 2% compounded quarterly for 6 years.
- Find out your value for (n) based on the compounded amount
- Quarterly would be 4 since there are 4 quarters in a year, Monthly would be 12 since there are 12 months in a year, Etc...
- Next just plug in all of your variables and solve.
FV = 1,000 (1 + .02/4)^ 4*6
1,000 (1 + .005)^ 24
1,000 (1.13)
FV = $1,127.16
Your example really helped clarify!
ReplyDeletezach,
ReplyDeletenice example. maybe a little intro would have been good and a conclusion, but still good.
professor little