Question

you have 500,000 dollars explain each scenerio and decide which is the best one to use??
Option 1: 6% compounded interest quarterly for 5 years.
Option 2: 8% compounded interest annually for 5 years.
Option 3: 14.5% simple interest for 10 years.

Answer 1

anyone

Answer 2

For options 1 and 2, you'll use the formula

A = P(1+r/n)^(n*t)


For Option 1, you'll plug in P = 500000, r = 0.06, n = 4, and t = 5

For Option 2, you'll plug in P = 500000, r = 0.08, n = 1, and t = 5

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For option 3, you'll use the formula

A = P(1+r*t)

where in this case, P = 500000, r = 0.145, and t = 10

Answer 3

ok could you put this in more simple terms? I understand princple* rate* time

Answer 4

Simple Interest:

Interest = princple* rate* time

I = P*r*t

with me so far?

Answer 5

ok so im trying to do compound interset and yes so far lol thnks

Answer 6

With a simple interest loan, you simply pay back the principle (the amount borrowed) plus some amount of interest (what we just found above)

Answer 7

So if you are loaned P dollars, then you have to pay back P+I dollars

Answer 8

what is n? i understand all the other terms

Answer 9

n = compounding frequency

Answer 10

n = 4 means you compound 4 times a year

Answer 11

n = 1 means you compound once a year

Answer 12

ok i kinda get it

Answer 13

that's great

Answer 14

so A = P(1+r/n)^(n*t) would be 500,000* 0.06/4 +4*4?

Answer 15

A = P(1+r/n)^(n*t)

A = 500000(1+0.06/4)^(4*5)

Answer 16

ok so symbols confuse me, maybe you could right it out like 500000 times 1+ 0.06 and so on

Answer 17

* means times

example:

6*2 = 6 times 2

Answer 18

so it's a handy shortcut