Results 1 to 5 of 5

Math Help - Compouind interest

  1. #1
    Newbie
    Joined
    Mar 2008
    Posts
    20

    Compouind interest

    1. A relative has decided to establish a bank account for your newborn daughter that will pay for some of her future college expenses. It is intended that the amount be worth $10,000 18 yrs. from now. Assuming that the account will earn 7.6%, compounded quarterly, how much money should be deposited into the account?

    2. After moving to the United States from Europe, the Taylors invested their savings of $4000 into an account earning 7.2% interest, compounded monthly. How much interest was earned by the account during each of the first three months?
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by tony351 View Post
    1. A relative has decided to establish a bank account for your newborn daughter that will pay for some of her future college expenses. It is intended that the amount be worth $10,000 18 yrs. from now. Assuming that the account will earn 7.6%, compounded quarterly, how much money should be deposited into the account?

    2. After moving to the United States from Europe, the Taylors invested their savings of $4000 into an account earning 7.2% interest, compounded monthly. How much interest was earned by the account during each of the first three months?
    For Question 1, assuming that the initial deposit is made on 1/1 of the year, since bank compounding for quarterlies occurs on 3/31, 6/30, 9/30, 12/31 of each year, you want:

    10000 /((1 + (0.076/4))^{72})

    =2579.05

    The 7.6% per annum is 1.9%/quarter. 18 full years with 4 quarters per year is 72 quarters

    This can be verified running this to check the accumulated balance like a 401(k) that is rolling here -> Balance Roll with Interest

    Say it is 1/1/2008 > 1/1/2026 when the balance is collected. Roll up 2579.05 at 7.6% compounded quarterly, which is 1.9% per quarter for 18 years with all 72 credited quarterlies and you will get your 10000.

    Question 2:

    Compound interest takes the previous balance from the last compounding period. So we do this as follows:

    7.2% per annum = 7.2/12 = .6% = .006 per month.

    Balance after 3 months = 4000 * (1.006)^3 = 4072.43

    Total Interest Earned = Accumulated Balance - Principal = 4072.43 - 4000 = 72.43
    Last edited by mathceleb; April 3rd 2008 at 09:50 AM.
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Newbie
    Joined
    Mar 2008
    Posts
    20
    First of all, Thanks so much On the second question, to figure each of the first three months meaning month 1, month 2, and month 3, do i need to divide 72.43 by 3? I am looking for 3 answers to this question.
    Follow Math Help Forum on Facebook and Google+

  4. #4
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by tony351 View Post
    First of all, Thanks so much On the second question, to figure each of the first three months meaning month 1, month 2, and month 3, do i need to divide 72.43 by 3? I am looking for 3 answers to this question.
    Ok, I understand. Here you go:


    You want the interest credit column. That is the balance at the beginning of the period times the monthly interest credit of 0.006.


    Month 1: 4000(.006) = 24 Therefore, new balance is 4024

    Month 2: 4024(.006) = 24.14 Therefore, new balance is 4048.14

    Month 3: 4048.14(.006) = 24.29 Therefore, new balance is 4072.43

    Your answers are the interest credits of 24, 24.14, and 24.29.
    Follow Math Help Forum on Facebook and Google+

  5. #5
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    See this attachment, it's cleaner. You want the yellow shaded column.
    Attached Files Attached Files
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Calculate interest rate based on interest in parcels
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 17th 2011, 09:38 PM
  2. Compound interest at changing interest rates
    Posted in the Business Math Forum
    Replies: 2
    Last Post: October 21st 2010, 04:55 AM
  3. Compouind interest
    Posted in the Business Math Forum
    Replies: 3
    Last Post: April 2nd 2008, 12:42 PM
  4. Interest
    Posted in the Business Math Forum
    Replies: 5
    Last Post: January 17th 2008, 10:21 AM
  5. Replies: 0
    Last Post: March 18th 2007, 01:31 PM

Search Tags


/mathhelpforum @mathhelpforum