Question

Please help me with compound interest.

Answer 1

Okay so I have been trying to grasp the formula of quarterly compound interest.

Answer 2

I can never seem to get the formula quite right, so I came here for help.

Answer 3

Here is problem #1:
Principal: $100
Interest rate: 0.5%
Time in years: 2

Answer 4

\[P(1+\frac{r}{4})^{4t}\]

Answer 5

For that one I got $160.18. Is that the correct answer?

Answer 6

it the interest rate really \(0.5\%\) ?

Answer 7

Yes

Answer 8

not 5% ?

Answer 9

Nope, it's 0.5%

Answer 10

ok, then compute
\[100\left(1+\frac{.005}{4}\right)^8\]

Answer 11

So I divide the interest rate by 100?

Answer 12

quarterly compounding right?

Answer 13

Yup

Answer 14

ok that explains the 4 in the denominator and the 8 in the exponent, since \(4\times 2=8\)

Answer 15

So I divide the rate by 100, and multiply the time by 4 for all future problems, correct?

Answer 16

as for the \(.005\) that is because \(0.5\%=.005\) when working with a formula, always use numbers, not percents

Answer 17

yes, to turn a percent into a decimal, divide it by 100, but really what you need is that you always work with numbers, not percents

Answer 18

Okay, got it. My answer is $101.00

Answer 19

the answer is only about \(\$101\) since \(.5\%\) is a very small rate of interest, which is why i asked at the beginning
yes you are right

Answer 20

Okay, thank you! Can you grade the next one just to make sure I have this cold?