Calculating the Return on Compounding Interest
Not what you're looking for?
Suppose I deposit $10,000 for 2 years at a rate of 10%.
how do I set up the problem and calculate the return (A) if the bank compounds annually (n = 1).?
Also I need to know to calculate the return (A) if the bank compounds quarterly (n = 4).? And Calculate the return (A) if the bank compounds monthly (n = 12)?
Please show me each calculation in order to get the answers also
calculate the return (A) if the bank compounds daily (n = 365)?
What observation can you make about the increase in mine return as my compounding increases more frequently?
if a bank compounds continuous, then I know the formula takes a simpler, that is
A=Pe^n
in a situation where e is a constant and equals approximately 2.7183.
How do I Calculate A with continuous compounding?
Now suppose, instead of knowing t, I know that the bank returned to me $15,000 with the bank compounding continuously. Using logarithms, how do I find how long I left the money in the bank (find t)? , How long will it take to double my money? At 10% interest rate and continuous compounding please show me how you get your answer so I know how to figure it out?
I know the formula for calculating the amount of money returned for an initial deposit money into a bank account or CD (Certificate of Deposit) is given by
A=P(1+r/n)m
A is the amount of returned.
P is the principal amount initially deposited.
r is the annual interest rate (expressed as a decimal).
n is the compound period.
t is the number of years.
Purchase this Solution
Solution Summary
The return on continuing compounding interest is calculated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.
Solution Preview
Hello!
We have first that P = $10,000, r = 0.1 (10% expressed as decimal), t = 2 (2 years) n = 1.
The return A will then be:
A = 10000(1 + 0.1/1)^2 = $10,201
When the bank compounds quarterly (n=4) we have to change two things. The most obvious one is that now n is 4 instead of 1. But another important change is that now we must NOT take (1+0.1/4) to the power of 2 as we did before. The value that goes in place of the 2 is the total number of compounding periods the bank gives you, which is t times n. In this case, n=4 and t=2, so t*n = 8. What does this 8 represent? It's just the number of quarters during which your bank compounded the return. Since you leave the deposit for 2 years, and each year has 4 quarters, then the deposit will grow over 8 quarters. The total return will now ...
Purchase this Solution
Free BrainMass Quizzes
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.