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Thread: find the orignal amount using compund interest formulas

  1. #1
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    find the orignal amount using compund interest formulas

    Mike buys a ring for his finacee by paying $30 per month for one year. If the interest rate is 10% per year, what was the original price of the ring?

    Here are the compound interest formulas my teacher gave us to use for this problem. we are suppose to pick the right one but I am not sure which one to use.

    monthly payment-> (A*R*(1+R)^N)/((1+R)^N-1)

    ordinary annuity-> A=P(((1+R)^n-1)/(R))

    annuity due-> A=P(((1+R)^n-1)/(R)) (1+R)
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  2. #2
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    Re: find the orignal amount using compund interest formulas

    Hey dtdj13.

    Do you know that a payment with interest is a reverse annuity? [i.e. taking an annuity value down to zero]?
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  3. #3
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    Re: find the orignal amount using compund interest formulas

    Quote Originally Posted by dtdj13 View Post
    ordinary annuity-> A=P(((1+R)^n-1)/(R))
    Above is correct formula but gives the FUTURE value of $30 monthly.
    You need to divide the result by (1+R)^12 to get PRESENT value.
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