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Math Help - Coumpound Interest Problem

  1. #1
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    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?
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  2. #2
    Super Member Quacky's Avatar
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    Nov 2009
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    Windsor, South-East England
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    Edit:Made a substantial mistake; see this link for an explanation!
    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 A=10000

    This is compounded by 3.2\% after 6 months:

    A=10000(1.032)

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

    A=10000(1.032)(1.032)

    So after one year, you have

    A=10000(1.032)^2

    And after T years:

    A=10000(1.032)^{2t}

    I think they've missed out a decimal place in their answer, otherwise I have the same result.
    Last edited by Quacky; April 11th 2011 at 06:11 PM.
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  3. #3
    Super Member Quacky's Avatar
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    Had to edit out a gaping error!
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