Results 1 to 5 of 5

Math Help - Annual Interest & Capital Equation

  1. #1
    Newbie
    Joined
    Feb 2010
    From
    Originally from Indianapolis, Indiana - but currently live in Haarlem, The Netherlands
    Posts
    18

    Annual Interest & Capital Equation

    I have been studying for a mathematics entrance test and the following problem came up on the practice exam:

    Capital K is deposited at an annual interest rate of 4%. Interest is compounded
    once a year. In fifteen years time the capital has grown to an amount of
    108056.62 euro. Compute the principal capital K.


    Could anyone suggest a formula/formulas for solving this problem. Also, could anyone suggest an area of mathematics to concentrate my efforts toward problems such as the above.

    Thank you,

    Matty
    Follow Math Help Forum on Facebook and Google+

  2. #2
    MHF Contributor
    Joined
    Aug 2007
    From
    USA
    Posts
    3,110
    Thanks
    2
    Deposit: K
    1 year later: K*(1.04)
    2 years later: K*(1.04)*(1.04) = K*(1.04)^2
    3 years later: K*(1.04)^3
    ...
    15 years later: K*(1.04)^15 = 108,056.62

    For me, the concept of "a formula" is very, very weak. Figure it out! Make your own formulae. The area of concentration you should pursue is in solving problems, rather than in memorizing things. Take a deep breath and think it through.
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Newbie
    Joined
    Feb 2010
    From
    Originally from Indianapolis, Indiana - but currently live in Haarlem, The Netherlands
    Posts
    18

    Formula

    TK -

    I understand the formula you wrote. However, I guess I went blank when you wrote (1.04) in the context of the formula. I thought it would be (0.04) which equals 4%. Is the (1.04) because the "1" is equal to 100% of K?

    Thank you,

    Matty
    Follow Math Help Forum on Facebook and Google+

  4. #4
    MHF Contributor
    Joined
    Aug 2007
    From
    USA
    Posts
    3,110
    Thanks
    2
    You have it.

    .04 * K is the interest earned in the first year. You must then add that interest to the original amount, K, to manage the accumualted value one year after the deposit.

    K + 0.04*K = 1.00*K+ 0.04*K = K*(1.00 + 0.04) = K*1.04
    Follow Math Help Forum on Facebook and Google+

  5. #5
    Newbie
    Joined
    Feb 2010
    From
    Originally from Indianapolis, Indiana - but currently live in Haarlem, The Netherlands
    Posts
    18
    So given the formula K*(1.04)^15 = 108,056.62, K should = 60,000...?
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Annual Compound Interest
    Posted in the Business Math Forum
    Replies: 2
    Last Post: April 15th 2011, 07:45 AM
  2. Compound interest + New capital each year
    Posted in the Business Math Forum
    Replies: 1
    Last Post: March 16th 2011, 03:25 AM
  3. annual rate of interest
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 10th 2011, 11:05 PM
  4. Annual Compound Interest
    Posted in the Business Math Forum
    Replies: 2
    Last Post: March 16th 2010, 08:32 PM
  5. Annual Compounding Interest
    Posted in the Pre-Calculus Forum
    Replies: 6
    Last Post: December 28th 2008, 07:24 AM

Search Tags


/mathhelpforum @mathhelpforum