Compound Interest!!

Some important terms....

• original principal
• nominal interest rate
• interest period or conversion period
• frequency of conversions
• periodic interest rate
• number of interest periods in the investment period

S=P(1+i)n

I=S-P

consider the following examples:

Find the future value of RM1000which was investsed for

a)4 years at 4% compounded annually

b)2 years 3 months at 4% compounded quarterly

c)5 years 6 months at 14% compounded semi-annually

solution:

a)S=1000(1+(4%/1))4 =RM1169.86

b)S=1000(1+(4%/4)9 =RM1093.69

c)S=1000(1+(14%/2)11=RM2104.85

Woaa...I found out that this chapter is quite difficult..I hope that I will understand it even it is confusing huhuhu...