# Thread: Compound Interest

1. ## Compound Interest

Hello

I am having difficulty with this question. I know the formulas for calculating compound interest annually, monthly ect however I do not how to apply these to this question:

Q. How much is owed after two years if $2000 is borrowed at 6% per annum compound interest compound monthly and no repayments being made before the end of the two years? I've started with p= 2000 n= 2 and r= 6 next I did: 2000(1.06)^2 however I was incorrect. Thank you for any help 2. The formula you want to use is$\displaystyle A = P\left(1 + \frac{r}{n}\right)^{nt}$where: P = principal amount (initial investment), r = annual interest rate (as a decimal), n = number of times the interest is compounded per year (monthly = 12, quarterly = 4, etc.), t = number of years, and A = amount after time t So, in your question... P = 2000 r = 0.06 n = 12 t = 2$\displaystyle \begin{aligned}
A &= P\left(1 + \frac{r}{n}\right)^{nt} \\
&= 2000\left(1 + \frac{0.06}{12}\right)^{12(2)} \\
&= 2000(1.005)^{24} \\
&\approx 2254.32
\end{aligned}\$

01

3. Thank you

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