Compound interest question: suppose you deposit $20K for ...

[prepage]

Using the formula:

A = P ( 1 + r/n)NT^
A is the amount of returned
P is the principal amount deposited
r is the annual interest rate (expressed as a decimal)
n is the compound period
t is the number of years

Suppose you deposit $20,000 for 3 years at a rate of 8%.

Calculate the return (A) if the bank compounds annually (n = 1).
The answer that I came up with is: $116,640

Is that correct?

 

[Denis]

Re: Compound interest question

Using the formula:
A = P ( 1 + r/n)NT^
A is the amount of returned
P is the principal amount deposited
r is the annual interest rate (expressed as a decimal)
n is the compound period
t is the number of years
Suppose you deposit $20,000 for 3 years at a rate of 8%.
Calculate the return (A) if the bank compounds annually (n = 1).
The answer that I came up with is: $116,640
Is that correct?

prepage, you can be my Banker right away;
116640 - 20000 = 96640: you'll give me $96,640 in interest if I lend you $20,000:
IT'S A DEAL ! :wink:

Seriously, this is the calculation:
20000(1.08)^3 = ?
I see that you used: 20000(1.8)^3 : 8% = .08

You SHOULD be able to at least tell your answer is way out of whack:
$20,000 at 8% for 1 year = 20000 * .08 = 1600 only.

 

[prepage]

Re: Compound interest question

Using the formula:
A = P ( 1 + r/n)NT^
A is the amount of returned
P is the principal amount deposited
r is the annual interest rate (expressed as a decimal)
n is the compound period
t is the number of years
Suppose you deposit $20,000 for 3 years at a rate of 8%.
Calculate the return (A) if the bank compounds annually (n = 1).
The answer that I came up with is: $116,640
Is that correct?

prepage, you can be my Banker right away;
116640 - 20000 = 96640: you'll give me $96,640 in interest if I lend you $20,000:
IT'S A DEAL ! :wink:

Seriously, this is the calculation:
20000(1.08)^3 = ?
I see that you used: 20000(1.8)^3 : 8% = .08

You SHOULD be able to at least tell your answer is way out of whack:
$20,000 at 8% for 1 year = 20000 * .08 = 1600 only.

Thanks I see where my era came in.

Instead of .08, I had .8. Makes a big difference. That made 5.83 instead of 1.26

 

[Denis]

Re: Compound interest question

Thanks I see where my era came in.
Instead of .08, I had .8. Makes a big difference. That made 5.83 instead of 1.26

Hmmm...I guess that means I'm not lending you $20,000

 

[prepage]

Re: Compound interest question

Thanks I see where my era came in.
Instead of .08, I had .8. Makes a big difference. That made 5.83 instead of 1.26

Hmmm...I guess that means I'm not lending you $20,000

Not at all. LOL!!