i earned 53 cents during a 30-day month in a savings account that pays 5.16% and my average daily balance was $127.89......i am playing around with the future value formula FV= PV[1+(r/m)]^(m*n) and i cannot figure out how they got 53 cents of interest from a $127.89 average daily balance? Interest is compounded daily and computed from the average daily balance on the last day of the month.
2006-11-02 17:31:54 · 3 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
if interest is compounded daily, don't forget to...
1. divide 5.16% by 365 to get the daily rate
2. use 30 days as your period "n"
3. don't use the avg daily balance. you must use the initial principal balance at the beginning of the 30 day period.
i haven't worked it out, but if your formula is correct, the future value will work.
if you have a business calculator (preferrably from HP)
PV = initial principal balance
i = 5.16% divided by 365 days
n = 30 days
solve for FV
2006-11-02 17:49:13 · answer #1 · answered by loveholio 5 · 0⤊ 0⤋
The 53c comes from the fact that $127.89*(.0516/12)=0.549(roughly) the formula is adding the interest to the capital portion.
I assume you know this but:
Use the whole formula, where PV=127.89, r=0.0516, m=12, n=1(the period of one month) else make m=365 and n=30... (will give a more accurate measure) then just minus the PV from the FV, then you should get the answer.
2006-11-03 01:50:15 · answer #2 · answered by slashpigeon86 2 · 0⤊ 0⤋
Most savings accounts are paying less than 1%, so the question becomes, is this just an exercise in math, or where can I sign up?
2006-11-03 01:44:26 · answer #3 · answered by Butterflygirl 1 · 0⤊ 0⤋