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Math Help - Compound interest

  1. #1
    Member helloying's Avatar
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    Jul 2008
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    Compound interest

    Lily invest $2500 at simple interst for 9 months. The amt that she will receive is $2650. If she invests $2500 at the same rate for 9 months but compounded monthly, how much more interest would she receive?
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  2. #2
    Super Member
    Joined
    Jun 2008
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    The interest I lily gained by the simple interest is:
    I = 2650-2500 = 150

    Recall that simple interest I = Prt. Given principal P, time t, and interest I, you can solve for rate r. Note that the rate here is per month, so you may have to multiply by 12 to switch it to annual for convenience.

    Recall that the compounded amount formula is:
    A = P\left(1+\frac{r}{m}\right)^{mt}

    Simply find the compounded amount and subtract the principal from it to find the interest. Remember to switch the time to years. Then find out how much more interest she would receive.
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