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Compound Interest

  1. May 20, 2008 #1
    i have five problems on this on my econ test tomorrow. PLEASE HELP! i've looked in my book and can't find anything! thank you :)

    1. The problem statement, all variables and given/known data
    Calculate compound interest:
    principal: 65,000
    rate: 5.25%
    time: 1.5 years

    it doesn't say how long it's going to be compounded

    2. Relevant equations
    i found this one on wikipedia http://en.wikipedia.org/wiki/Compound_interest :
    A = P(1 + (r/n)) ^ (nt)
    where,
    P = principal amount (initial investment)
    r = annual interest rate (as a decimal)
    n = number of times the interest is compounded per year
    t = number of years
    A = amount after time t

    and then i found this one...

    A = P(1 + r)^t
    where,
    r = annual interest rate
    t = number of years
    P = principal amount
    A = amount after time t

    3. The attempt at a solution
    i REALLY tried to calculate this, but i can't get the answer which is supposed to be $5185.36

    please help me! i'd reallyreallyreally appreciate it :D
     
  2. jcsd
  3. May 20, 2008 #2

    lurflurf

    User Avatar
    Homework Helper

    calculation is
    65000*[(1+.0525)^1.5-1]

    It is written confusingly
    we have
    A = P(1 + (r/n)) ^ (nt)
    where,
    P = principal amount (initial investment)
    r = annual interest rate (as a decimal)
    n = number of times the interest is compounded per year
    t = number of years
    A = amount after time t
    A = P(1 + (r/n)) ^ (nt)
    I = P[(1 + (r/n)) ^ (nt)-1]
    I is the interest and
    A=I+P
    where,
    P = 65000
    r = .0525
    n = 1
    t = 1.5
    A = 65000*[(1+.0525)^1.5]
    I = 65000*[(1+.0525)^1.5-1]
     
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