# Coumpound Interest Problem

• Apr 11th 2011, 04:32 PM
BuhRock
Coumpound Interest Problem
I need help with a word problem. I thought I new how to do this, but apparently not.

"Following the birth of his child, Juan deposits \$10,000 in a trust fund where interest is 6.4% compounded semiannually. "

A) Find a function for the amount in the account after t years.

This should be A=10,000(1+.64/2)^2(t) ???????

B)Find the amount of money in the account at t= 0,4,8,10,18. I just need to know how to do this part. I put this in on my calculator but the numbers don't seem realistic.

A = 10,000(1+.64/2)^(2*0) , this one equals \$10,000
A = 10,000(1+.64/2)^(2*4) , I'm getting 92170.39521

What am I doing wrong?
• Apr 11th 2011, 04:53 PM
Quacky
Compound Interest - Periodic Compounding

The wording threw me.

Essentially what this means is that you receive a 3.2% compound after the first 6 months, then a 3.2% compound after the next 6 months.

The starting amount is \$\displaystyle A=10000\$

This is compounded by \$\displaystyle 3.2\%\$ after \$\displaystyle 6\$ months:

\$\displaystyle A=10000(1.032)\$

...Then it's compounded again after another \$\displaystyle 6\$ months:

\$\displaystyle A=10000(1.032)(1.032)\$

So after one year, you have

\$\displaystyle A=10000(1.032)^2\$

And after T years:

\$\displaystyle A=10000(1.032)^{2t}\$

I think they've missed out a decimal place in their answer, otherwise I have the same result.
• Apr 11th 2011, 05:06 PM
Quacky
Had to edit out a gaping error!