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Home > Archive > Hepatitis disease > May 2005 > Compound Interest For Dummies
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Compound Interest For Dummies
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| It has come to my attention that some unfortunate Americans hadn't grasped
Compound interest by the age of 22, so in the interest of public welfare I am
posting the following:
Interest and Exponential Growth
The Compound Interest Equation
P = C (1 + r/n) nt
where
P = future value
C = initial deposit
r = interest rate (expressed as a fraction: eg. 0.06)
n = # of times per year interest in compounded
t = number of years invested
Simplified Compound Interest Equation
When interest is only compounded once per yer (n=1), the equation simplifies to:
P = C (1 + r) t
Continuous Compound Interest
When interest is compounded continually (i.e. n --> ), the compound interest
equation takes the form:
P = C e rt
Demonstration of Various Compounding
The following table shows the final principal (P), after t = 1 year, of an
account initally with C = $10000, at 6% interest rate, with the given
compounding (n). As is shown, the method of compounding has little effect.
n P
1 (yearly) $ 10600.00
2 (semi-anually) $ 10609.00
4 (quarterly) $ 10613.64
12 (monthly) $ 10616.78
52 (weekly) $ 10618.00
365 (daily) $ 10618.31
continuous $ 10618.37
Loan Balance
Situation: A person initially borrows an amount A and in return agrees to make n
repayments per year, each of an amount P. While the person is repaying the loan,
interest is accumulating at an annual percentage rate of r, and this interest is
compounded n times a year (along with each payment). Therefore, the person must
continue paying these installments of amount P until the original amount and any
accumulated interest is repayed. This equation gives the amount B that the
person still needs to repay after t years.
B = A (1 + r/n)nt - P (1 + r/n)nt - 1 (1 + r/n) - 1
where
B = balance after t years
A = amount borrowed
n = number of payments per year
P = amount paid per payment
r = annual percentage rate (APR)
Do you *get* *it* now *Stoopid* ?????
Jeez, and there you was promising to take care of people's money. I can
seriously see why the Chinese are getting rid of their dollars.
Firebird
Never trust anybody who is too sophisticated to own a rubber chicken.
http://www.veloceraptor.free-online.co.uk/masters.html
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| In article <memo.20050529211814.1080B@veloceraptor.free-online.co.uk>,
alan@veloceraptor.free-online.co.uk (Alan) wrote:
> It has come to my attention that some unfortunate Americans hadn't grasped
> Compound interest by the age of 22, so in the interest of public welfare I am
> posting the following:
>
> Interest and Exponential Growth
>
> The Compound Interest Equation
>
> P = C (1 + r/n) nt
>
> where
> P = future value
> C = initial deposit
> r = interest rate (expressed as a fraction: eg. 0.06)
> n = # of times per year interest in compounded
> t = number of years invested
>
> Simplified Compound Interest Equation
> When interest is only compounded once per yer (n=1), the equation simplifies
> to:
>
> P = C (1 + r) t
>
> Continuous Compound Interest
> When interest is compounded continually (i.e. n --> ), the compound interest
> equation takes the form:
>
> P = C e rt
>
> Demonstration of Various Compounding
> The following table shows the final principal (P), after t = 1 year, of an
> account initally with C = $10000, at 6% interest rate, with the given
> compounding (n). As is shown, the method of compounding has little effect.
> n P
> 1 (yearly) $ 10600.00
> 2 (semi-anually) $ 10609.00
> 4 (quarterly) $ 10613.64
> 12 (monthly) $ 10616.78
> 52 (weekly) $ 10618.00
> 365 (daily) $ 10618.31
> continuous $ 10618.37
> Loan Balance
> Situation: A person initially borrows an amount A and in return agrees to
> make n repayments per year, each of an amount P. While the person is repaying
> the loan, interest is accumulating at an annual percentage rate of r, and
> this interest is compounded n times a year (along with each payment).
> Therefore, the person must continue paying these installments of amount P
> until the original amount and any accumulated interest is repayed. This
> equation gives the amount B that the person still needs to repay after t
> years.
>
> B = A (1 + r/n)nt - P (1 + r/n)nt - 1 (1 + r/n) - 1
>
> where
>
> B = balance after t years
> A = amount borrowed
> n = number of payments per year
> P = amount paid per payment
> r = annual percentage rate (APR)
>
> Do you *get* *it* now *Stoopid* ?????
>
> Jeez, and there you was promising to take care of people's money. I can
> seriously see why the Chinese are getting rid of their dollars.
>
> Firebird
>
> Never trust anybody who is too sophisticated to own a rubber chicken.
>
> http://www.veloceraptor.free-online.co.uk/masters.html
In fact this will help.
www.moneychimp.com/calculator/compo..._calculator.htm
Firebird
Never trust anybody who is too sophisticated to own a rubber chicken.
http://www.veloceraptor.free-online.co.uk/masters.html
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