Donna Deposited money onto an account that pays 8% per annum, compounded quarterly. When she goes back 3 years later she discovers 1585.30 in her account.
So Here is my question, I know the formula A=P(1+i)^n but do not know what values to put in for i or n
I have so far 1585.30=P(1+0.2)^3 but I am pretty sure that is incorrect, please help. I do not need the answer I can figure that out on my own, I am just having difficulty understanding what to use for i and n. The book is not real good at explaining things.
2006-10-15 09:08:33 · 9 answers · asked by gg 4 in Science & Mathematics ➔ Mathematics
Thanks Everyone
2006-10-15 09:32:18 · update #1
use i = 0.08/4 since you need the quarterly interest value
and n = 12 from 4 times a year for 3 years
2006-10-15 09:10:54 · answer #1 · answered by ? 7 · 1⤊ 0⤋
In the case of a quarterly compounded formulae:
The formula is re-designed as follows:
A = P(1 + r/m)^m*n
where A = Amount after 3 years
P = Principal Amount
r = rate of interest p.a.
m = quarterly compounded factor
n = number of years
1585.30 = P(1 + 0.08/4)^4*3
1585.30 = P(1.02)^12
P = 1585.30/(1.02)^12
P = 1585.30/1.2682
P = 1250
Hence Donna deposited $1250.00
2006-10-15 09:24:34 · answer #2 · answered by aazib_1 3 · 0⤊ 0⤋
i is the interest rate per compounding. So, the rate of 8%, (.08 by the way) is annual. Divide that by four to get i = .02. The n stands for the number of compounding periods. In this case, 3 years means 12 compounding periods. So, n = 12.
2006-10-15 09:14:18 · answer #3 · answered by iuneedscoachknight 4 · 0⤊ 0⤋
8% per annum would mean i is 0.08. The n should be 3 for 3 years. I've never come across a question where the interest is added quatrerly though.
2006-10-15 09:14:04 · answer #4 · answered by the demon 1 · 0⤊ 0⤋
I'm pretty sure you put in .08/4 = .02 for i. That would be the interest rate per quarter. Then put in 12 for n, the number of quarters it was compunded. I got about $1250 for the principal; I have to assume that's what you were looking for--you forgot to mention what the actual question was!
2006-10-15 09:18:20 · answer #5 · answered by Steve 7 · 0⤊ 0⤋
A=P(1+i)^n is correct. Your error was in writing 8% as .8 instead of .08 & not multiplying 3 yrs times 4 quarters per year, so
1585.3=P(1.02)^12=P*1.268
P=1585.3/1.268=$1250.00
2006-10-15 09:20:09 · answer #6 · answered by yupchagee 7 · 0⤊ 0⤋
let's call something called effective interest rate
the sum= P(1+i)^n
i is the eff. int.rat.
n is number of quarters
the sum= P(1+x*m)
x is the annual rate
n is the number of years
P=1585.3/(1+3*.08)
i can be calculated to find the sum at any quarter
2006-10-15 09:18:49 · answer #7 · answered by mozakkera 2 · 0⤊ 0⤋
Hey, I am only in 8th grade. I would ask a teacher... Or you can ask your parents. Remember: help is not good or bad its both.
2006-10-15 09:12:15 · answer #8 · answered by ▐▀▀▼▀▀▌ ► Randy ◄ ▐▄▄▲▄▄▌ 3 · 0⤊ 0⤋
Antoine25 is correct.
2006-10-15 09:15:13 · answer #9 · answered by mysstere 5 · 0⤊ 0⤋