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Math Help - Compound Interest

  1. #1
    Newbie
    Joined
    Feb 2009
    Posts
    17

    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
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  2. #2
    Super Member
    Joined
    May 2009
    Posts
    527
    The formula you want to use is
    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

    \begin{aligned}<br />
A &= P\left(1 + \frac{r}{n}\right)^{nt} \\<br />
&= 2000\left(1 + \frac{0.06}{12}\right)^{12(2)} \\<br />
&= 2000(1.005)^{24} \\<br />
&\approx 2254.32<br />
 \end{aligned}


    01
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  3. #3
    Newbie
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    Feb 2009
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    Thank you
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