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Makman
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Homework Statement
If the total interest earned on an investment at 8.2% compounded semiannually for 8.5 years was $1,175.98, what was the original investment?
Homework Equations
A=P(1+i)^n
Compound interest is the interest calculated on the initial principal amount as well as the accumulated interest from previous periods. This means that the interest earned in each period is added to the principal amount, and the interest for the next period is calculated based on the new total.
Simple interest is calculated only on the initial principal amount, while compound interest takes into account the accumulated interest from previous periods. This means that compound interest will generate more interest over time compared to simple interest.
The formula for compound interest is: A = P (1 + r/n)^(nt), where A is the final amount, 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.
Yes, in some cases, compound interest can be negative. This can happen if the interest rate is negative or if the amount of interest earned is less than the amount of interest paid. In these cases, the final amount will be less than the initial principal amount.
Compound interest is commonly used in investments, such as savings accounts, stocks, and bonds. It can also be used for loans, where the borrower has to pay interest on the initial amount as well as the accumulated interest. Essentially, compound interest helps increase the growth of money over time.