Sign In Sign Up Ask an AI advisor
CoolRahim9090
CoolRahim9090
12.12.2020 • 
Mathematics

Simple question about monthly compound interest, please help: The formula we must use in this course to calculate compound interest is: A=P(1+i)^n

(A = the final amount of the investment, P = Principal/amount invested, i = interest rate per compounding period (as decimal), n = total number of compounding periods in the investment).

The period of investment is one year.

My monthly contribution is $200. This comes to $2400 yearly contribution (200 x 12 = 2400).

I need to calculate my yearly interest. I get 5% interest, compounded monthly.

Please verify if my thought process is correct:

For A=P(1+)^n, we know that n = 12, because the interest is compounded monthly over one year. Now to find i:

i = Rate (r) ÷ Number of compounds per year

= 0.05 ÷ 12

= 0.004

Now to solve the final amount:

A = P(1 + i)^n

A = $2400(1 + 0.004)^12

A = $2400(1.004)^12

A = $2400(1.0490702075)

A = $2517.77

Earning a compound interest monthly for one year results in $2,517.77.

Interest = Final amount – Principal

= $2517.77 - $2400

= $117.77

The yearly interest comes to $117.77.

Now, I need to find the monthly interest.

But I can't figure out the formula.

Please help me figure it out. I tried, but I don't think it's right, should it be number 1:

A = P(1 + i)^n

A = $200(1 + 0.004)^12

A = $200(1.004)^12

A = $200(1.0490702075)

A = $209.81

The final amount comes to $209.81.

Interest = Final amount – Principal

= $209.81 - $200

= $9.81

The monthly interest comes to $9.81.

Or number 2:

Monthly interest = Yearly interest ÷ Months in a year

= $117.77 ÷ 12

= $9.81

Not sure if I'm overcomplicating it or just way off. Thanks!!

Solved
Show answers

Ask an AI advisor a question

I want advice