Formulas for interest Interest

In summary, the conversation discusses using the compound interest formula to find the amount of money one would have after 6 years with 5000 dollars at 9% interest. The formula for compound interest is P=A(1+(r/n)^rt, but it is important to make sure the correct variables are used. Other interest-related equations mentioned include compound interest continuously, the rule of 72 and 82, and simple interest.
  • #1
cracker
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Today I was watching my sister do her Financial homework and I tryed to do one of them problems it said something about haveing 5000 bucks at 9% interest for 6 years and you had to find how much you would have.

And so I tryed to use the compound interest formula P=A(1+(r/n)^rt but we both got totaly different anwers. She did it on a standar issued financial caculator.

So is that the formula for compound interest? P=A(1+(r/n)^rt. And is this how you plug it in? P=5,000(1+(.09/6)^(.09*6)

Also what are other interest raletaed equations and state what goes in the variables.

All the other ones that I know are:

Compound Interest: P=A(1+(r/n)^rt

Compound Interest Continusly: P=e^rt

Rule of 72

Rule of 82

Simple Interest: You don't really need a formula for this one, all that happens is that your you only earn interest on your original amound earns interst.
 
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  • #2
The formula for compound interest is: [tex] P(1+\frac{r}{n})^{nt} [/tex] not [tex] P(1+\frac{r}{n})^{rt} [/tex] So:

[tex] A = 5000(1+\frac{0.09}{1})^{6} = 8385.5 [/tex], assuming that it is returned once per year.
 
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  • #3
I never remember the compound interest formula. I just express a 9% increase as 1.09. Then the answer just becomes [tex]5000(1.09^6)[/tex]

I just find this method easier to remember tbh..although it's basically the same thing.
 
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  • #4
That's assuming it is compounded annually. Surely the problem said something more than just "5000 bucks at 9% interest for 6 years". Didn't it say something like "simple interest" or "compounded monthly", "compounded annually", etc.?
 

What is the formula for simple interest?

The formula for simple interest is I = PRT, where I is the interest earned, P is the principal amount, R is the interest rate, and T is the time period in years.

What is the formula for compound interest?

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the total amount including interest, P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

How do you calculate the principal amount for a given interest rate and interest earned?

The formula for calculating the principal amount is P = I / (RT), where P is the principal amount, I is the interest earned, R is the interest rate, and T is the time period in years.

What is the difference between simple and compound interest?

The main difference between simple and compound interest is that simple interest is calculated only on the initial principal amount, while compound interest is calculated on the initial principal amount plus any accumulated interest from previous periods.

How do you calculate the effective annual interest rate?

The formula for calculating the effective annual interest rate is (1 + r/n)^n - 1, where r is the nominal annual interest rate and n is the number of times the interest is compounded per year.

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