COMPOUND INTEREST
Calculate the new balance on a deposit which is compounded quarterly for 4 years at a given annual interest rate.
SOLUTION: 1. Calculate the quarterly interest rate.
2.Calculate the new balance (principal plus interest).
FORMULA: New balance = P (1 + i)n
| Where | P | = amount of deposit (principal) |
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| i | = interest rate per period |
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| n | = number of years ⋅ 4 |
EXAMPLE: | If | P | = $6,150 |
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| i | = 5% annum ÷ 4 periods = 0.0125 |
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| n | = 16 (4 years ⋅ 4) |
16 .
Then 6,150 (1.0125) =. $7,502.32 (New Balance)
(QS-2760H/2770H):
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| OPERATION | DISPLAY |
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| .05 | 0.05 |
| 0.05 | ÷ | Annual int. rate |
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| 4 |
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| 4. | = |
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| 0.0125 |
| Quarterly int. rate |
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| 0.0125 |
| 0.0125 |
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| 0.0125 |
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| 1 | 1.0125 |
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| 1.0125 | ◊ | (1 + i) |
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| 1.0125 |
| 1.0125 | ⋅ |
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| 1.0125 | = |
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| 1.02515625 |
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| 1.02515625 |
| 1.02515625 |
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| 1.02515625 |
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| 1.02515625 | = |
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| 1.05094533691 |
| (1 + i)4 |
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| 1.05094533691 |
| 1.05094533691 |
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| 1.05094533691 |
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| 1.05094533691 | = |
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| 1.10448610117 |
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| 1.10448610117 |
| 1.10448610117 |
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| 1.10448610117 |
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| 1.10448610117 | = |
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| 1.21988954767 |
| (1 + i)16 |
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| 1.21988954767 |
| 1.21988954767 |
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| 1.21988954767 |
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| 6150 |
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| 6,150. | = | Principal | ||
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| 7,502.32071817 |
| New Balance |
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| 7,502.32071817 |
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| – 48 – |
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