jenni_fowler
find the amount of money in the bank account given the following conditions:
initial deposit= $5000, annual rate= 3%, time= 2 years
Delete
Share
This Question is Closed
adnanchowdhury
Best Response
You've already chosen the best response.
1
a = initial deposit, r = 1.03, n = 2
waheguru
Best Response
You've already chosen the best response.
0
What grade?
jenni_fowler
Best Response
You've already chosen the best response.
1
11th
jenni_fowler
Best Response
You've already chosen the best response.
1
says answer is
5,304.50
GT
Best Response
You've already chosen the best response.
4
It should be 5000 * (1.03)^2. Assuming compounding of the interest rate.
jenni_fowler
Best Response
You've already chosen the best response.
1
oh so its 5000(1.03)^2
waheguru
Best Response
You've already chosen the best response.
0
Gt where dide u get the 1.3 from
GT
Best Response
You've already chosen the best response.
4
At the end of first year, you will have: 5000 + 5000 * 0.03 = 5000 * (1.03).
At the end of second year, you will have: 5000 * (1.03) + 5000 * (1.03) * (0.03)
Because you earn interest in the second year on the interest amount of the first year.
So, that is same as:
5000 * (1.03)^2.
In general, for compounded interest, for n years at rate r and principal p, you get:
p * (1+r)^n
fortheloveofscience
Best Response
You've already chosen the best response.
0
oh yeah compounding of interest...
didnt tought of that
waheguru
Best Response
You've already chosen the best response.
0
OH
waheguru
Best Response
You've already chosen the best response.
0
I GET IT NOW GT TANKS
jenni_fowler
Best Response
You've already chosen the best response.
1
so how do i get the answer
GT
Best Response
You've already chosen the best response.
4
Use a calculator to find:
5000 * (1.03) * (1.03).
That should give you: 5,304.50
fortheloveofscience
Best Response
You've already chosen the best response.
0
yup its correct sir
jenni_fowler
Best Response
You've already chosen the best response.
1
thanks
it swas 5304.5
GT
Best Response
You've already chosen the best response.
4
Sometimes, these kind of problems can be formulated such that the interest rate "r" is compounded semi-annually or something else. In that case, the "formula" will be similar, but in that case, in p*(1+r)^n, r represents the rate of interest for that period (semi-annually for example) and n represents the total "compounding" periods.
fortheloveofscience
Best Response
You've already chosen the best response.
0
well we all stupidly used simple interest formula..silly me
jenni_fowler
Best Response
You've already chosen the best response.
1
so what is the p r and n represent in the equation
GT
Best Response
You've already chosen the best response.
4
For example, in this exact same problem, if compounding happened semi-annually, then you will have the following at the end of two years:
5000 * (1+0.015)^4
GT
Best Response
You've already chosen the best response.
4
p is initial amount.
n is number of periods.
GT
Best Response
You've already chosen the best response.
4
r is rate of interest for that period.
fortheloveofscience
Best Response
You've already chosen the best response.
0
principle,rate of interest and time period
jenni_fowler
Best Response
You've already chosen the best response.
1
so if it were 3000 instead of 5000 and rate was 5.5 and time was 5 years how do i set that up
GT
Best Response
You've already chosen the best response.
4
3000 * (1.055)^5
fortheloveofscience
Best Response
You've already chosen the best response.
0
use the same algorithm
GT
Best Response
You've already chosen the best response.
4
assuming annual compounding.
jenni_fowler
Best Response
You've already chosen the best response.
1
ok so its similar to the other one
GT
Best Response
You've already chosen the best response.
4
correct.
jenni_fowler
Best Response
You've already chosen the best response.
1
i got 3920.88
jenni_fowler
Best Response
You've already chosen the best response.
1
rounded
GT
Best Response
You've already chosen the best response.
4
Sounds right.
jenni_fowler
Best Response
You've already chosen the best response.
1
did i do it right?
GT
Best Response
You've already chosen the best response.
4
Yeah, I got the same. :)
adnanchowdhury
Best Response
You've already chosen the best response.
1
Oh sorry. My mistake. I gave you the sum formula for geometric progression. The correct formula in this case is:
\[a _{n} = ar ^{n-1}\], but in this case, you would take it as \[a _{n} = ar ^{n}\]
jenni_fowler
Best Response
You've already chosen the best response.
1
so i did it right :D
GT
Best Response
You've already chosen the best response.
4
yes!!
jenni_fowler
Best Response
You've already chosen the best response.
1
thakns again everyone