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Balance after one year

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Senior | Next Rank: 100 Posts
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by yumi2012 » Wed Aug 14, 2013 7:53 pm
Is this formula for balance with semiannually compounded interest? Or for annually compounded one?

10,000(1+0.10/2)^2 dollars
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by macattack » Wed Aug 14, 2013 11:16 pm
Hi yumi,
well it depends on the given! But assuming that the given is the following:
Interest rate compounded annually=10%
and the period is one year then the formula above would represent the balance after one year with interest compounded semi annually.
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by Brent@GMATPrepNow » Thu Aug 15, 2013 5:54 am
You can use this formula to calculate compound interest:
Final balance = P( 1 + r/c)^nc where:
P = the principal (the initial investment)
r = the annual interest rate expressed as a decimal
c = the number of times the interest is compounded each year
n = the number of years the investment collects interest


Example:
Kevin invests $1300 at an annual interest rate of 8 percent compounded quarterly. What is the value of his investment after 7 years?
Final balance = P( 1 + r/c)^nc
= 1300(1 + 0.08/4)^(4x7)
= 1300(1.02)^28

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Brent Hanneson - Creator of GMATPrepNow.com
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