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Math Help - Compound interest question.

  1. #1
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    Compound interest question.

    $250 per month is invested in an account that earns 9% per year, compounded monthly. What will the total in the account be at the end of 5 years.

    I have a formula on my work sheet that is supposed to solve this but every time i try to use it i get wayy wrong answers.. I am either doing something wrong on my calc or the formula has been incorrectly presented. If someone could explain a simple formula for this question it would be great.

    THANKS

    This saving calc http://www.bankwest.ca/Calculators/C...r.aspx?calc=11 gives me the answer i need but its the formula that i need to make sense of all this..
    Last edited by Retikx; November 17th 2008 at 11:40 AM. Reason: Gremlins.
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  2. #2
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    Quote Originally Posted by Retikx View Post
    $250 per month is invested in an account that earns 9% per year, compounded monthly. What will the total in the account be at the end of 5 years.

    I have a formula on my work sheet that is supposed to solve this but every time i try to use it i get wayy wrong answers.. I am either doing something wrong on my calc or the formula has been incorrectly presented. If someone could explain a simple formula for this question it would be great.

    THANKS

    This saving calc Bank West - Financial Calculators - Savings Calculator gives me the answer i need but its the formula that i need to make sense of all this..
    A=P\left(1+\frac{r}{n}\right)^{nt}

    P = principle
    r= interest rate as a decimal (e.g. 10% is 0.1)
    t = time in year
    A = net amount
    n = # of times interest is compounder a math

    A=250\left(1+\frac{0.09}{12}\right)^{12*5}

     = 391.42
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  3. #3
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    ooook, buuuut. Im still getting the wrong answer?? i must be doing something wrong on my calculator... forgive my ignorance but what do i do with the 12*5 ??? this is an exponent correct? ahhh i know this is simple but its frustrating, i just think i lack the general knoledge of the calculator..
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  4. #4
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    Quote Originally Posted by Retikx View Post
    ooook, buuuut. Im still getting the wrong answer?? i must be doing something wrong on my calculator... forgive my ignorance but what do i do with the 12*5 ??? this is an exponent correct? ahhh i know this is simple but its frustrating, i just think i lack the general knoledge of the calculator..
    Just replace 12*5 with 60. I wrote that down instead of 60 to show that that nt = 12*5 = 60

    so....

    A=250\left(1+\frac{0.09}{12}\right)^{12*5}

    = A=250\left(1+\frac{0.09}{12}\right)^{60}

    To type that into the calculator... just type this... in the following in the order they appear

    250(1+0.09/12)^60 ENTER
    If you have a very ancient, lame calculator.... then type:

    0.09/12 ENTER
    ANSWER + 1 ENTER
    ANSWER ^ 60 ENTER
    ANSWER * 250 ENTER = FINAL ANSWER
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  5. #5
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    Ok yes , i get the 391.42 result. But this is not the end product i need.. I need to know what will be in the account after 5 years of investing 250 per month compounded monthly at 9% per year... 391.42 does not give me that.. I'm probably missing something obvious here.. help??
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  6. #6
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    helllllllllllp
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  7. #7
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    Quote Originally Posted by Retikx View Post
    Ok yes , i get the 391.42 result. But this is not the end product i need.. I need to know what will be in the account after 5 years of investing 250 per month compounded monthly at 9% per year... 391.42 does not give me that.. I'm probably missing something obvious here.. help??

    Ah, I scanned through it and didn't see you want a monthly addition to it.

    i = r/12 = 0.09/12 = 0.0075

    FV (Future Value) = 250(1+i)( ((1+i)^(n*t) -1)) / i )

    = 250(1.0075)( (1.0075^60 - 1) / 0.0075) = 18997.45
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  8. #8
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    ok yes you are on the right track and that is the right answer, but i already got the final answer using this calculator Bank West - Financial Calculators - Savings Calculator What im REALLY interested in is a formula that encompasses all this info. looking at what you wrote im very confused... so many brackets... I tried to put your solution in the calculator and i was totaly lost..
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  9. #9
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    Quote Originally Posted by Retikx View Post
    ok yes you are on the right track and that is the right answer, but i already got the final answer using this calculator Bank West - Financial Calculators - Savings Calculator What im REALLY interested in is a formula that encompasses all this info. looking at what you wrote im very confused... so many brackets... I tried to put your solution in the calculator and i was totaly lost..
    I will go home in a few hours and put it in pretty print (unless someone else wants to do it)

    And I already gave you the general formula. Quoting myself...

    FV (Future Value) = MONTHLYADDITION(1+i)( ((1+i)^(n*t) -1)) / i )

    i = r/12 = 0.09/12 = 0.0075
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  10. #10
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    Thank you again but i dont know how to input this (1+i)( ((1+i)^(n*t) -1)) / i ) into the calculator every time i try i get the wrong answers..
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