Problema Solution
you have invested £12,000 at 8% for 4 years. What is the final balance of this investment, using:
Simple interest
interest compounded annually
interest compounded semi- annually
interest compounded quaterly
Answer provided by our tutors
Let
P = 12,000 the principal
r = 0.08 or 8%
t = 4 years
A = the final balance after t years
Simple interest:
A = P(1 + r*t)
A = 12000(1 + 0.08*4)
A = $15,840
Interest compounded annually:
A = P(1 + r)^2
A = 12000(1 + 0.08)^2
A = $13,996.80
Interest compounded semi- annually:
A = P(1 + r/2)^(2*2)
A = 12000(1 + 0.08/2)^4
A = $14,038.30
Interest compounded quarterly:
A = P(1 + r/4)^(2*4)
A = 12000(1 + 0.08/4)^8
A = $14,059.91