# Homework Help: Investment Calculator

1. Feb 24, 2005

### neik

Hi everybody,

I have given an equation to calculate the final Value (FV) of an investment as follows:

$$FV= Principal*(1+{R/N})^{NT}$$

Where:
Principal = initial investment amount,
R = annual interest rate,
N = number of times compounding is performed per year; this can be quaterly (4 times), monthly (12 times), or daily (365)
T = number of investment years

i was asked to find the final amount and total profit after x years.
and also the total amount after the first month, second month, third month, etc....

can someone give me some hints to solve this?

2. Feb 24, 2005

### moose

Sometimes you will find that the equation I=PRT, is easier to use for some questions.
I=interest earned
P=princepal invested
T=time

EDIT: I didn't notice that you said months, oops
sorry, disregard my post :)

Last edited: Feb 24, 2005
3. Feb 25, 2005

### FredGarvin

What you have is the equation for compounding interest from a single payment. In other words, you put "X" amount of dollars into an account, how much will you have after "Y" amount of time. The important part is that it is for a single payment.

The general term of the equation is:

$$F = P (1 + i)^n$$

where:
F = Future worth of the investment
P = Present worth of the investment
i = anual interest rate (IN DECIMAL FORM!)
n = number of compounding periods

There's one little snag to this equation. The number that you use for the interest rate is dependent upon how often you are compounding. If you are compounding annually, n will be the number of years compounding and i will be the anual percentage rate (in decimal form). However, if you want to compound monthly, like you said in your question, n will be the number of months compounding and i will be the anual percentage rate divided by 12. If you want to compound daily, divide i by 365. The equation you stated is the same equation I have given except it takes this step into account.

It's a pretty straight forward equation to use once you get the little trick down. It's very easy to set this up in a spreadsheet. I would suggest doing that and using that as a sanity check on your VB code results.

4. Feb 25, 2005

### neik

hi, thanks for responding

but i still dont know how to calculate the "total profit"
any ideas?

5. Feb 25, 2005

### moose

Is it simple interest?

6. Feb 25, 2005

### xanthym

Using your terminology, "Total Profit" is normally determined from:

$$\ \ \ (Total \ Profit) \ = \ (Final \ Value) \ - \ (Original \ Principle)$$

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Last edited: Feb 25, 2005