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how to use the compound interest formula. In order to calculate the value of the investment after the period of 2 years compound interest formula quarterly will be used. By reinvesting the amount earned an investment will earn money based on the effect of compounding.
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Lets look at the quantities in the problem statement. In the formula for calculating compound interest the variables i and n have to be adjusted if the number of compounding periods is more than once a year. For monthly compounding the periodic interest rate is simply the annual rate divided by 12 because there are 12 months or periods during the year.
The compound interest formula solves for the future value of the investment.
If there are 12 compounding periods we would raise our 102 to the 12th power to get 127. P is the principal amount. I would choose option 1. Compound Interest Formula The formula for the Compound Interest is This is the total compound interest which is just the interest generated minus the principal amount.
