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Thread: Annual Compound Interest Calculation: "How would years 3 and 4 appear in the above?"

  1. #1
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    Annual Compound Interest Calculation: "How would years 3 and 4 appear in the above?"

    According to the information on compound interest at the following URL: http://www.moneychimp.com/articles/f...s/fmfutval.htm

    "To find a formula for future value, We'll write P for your starting principal, and r for the rate of return expressed as a decimal. (So if the interest rate is 5%, r equals .05).
    The balance will grow according to the following schedule:"


    Year------------Balance

    Now ------------P
    1 ---------------P + rP
    2---------------(P + rP) + r(P + rP)
    3
    4

    How would years 3 and 4 appear in the above?
    Last edited by KWF; 02-07-2018 at 07:38 PM.

  2. #2
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    Quote Originally Posted by KWF View Post
    According to the information on compound interest at the following URL: http://www.moneychimp.com/articles/f...s/fmfutval.htm

    "To find a formula for future value, We'll write P for your starting principal, and r for the rate of return expressed as a decimal. (So if the interest rate is 5%, r equals .05).
    The balance will grow according to the following schedule:"


    Year------------Balance

    Now ------------P
    1 ---------------P + rP
    2---------------(P + rP) + r(P + rP)
    3--------------- (Previous balance) + r (Previous balance)
    4--------------- (Previous balance) + r (Previous balance)


    How would years 3 and 4 appear in the above?
    .
    “... mathematics is only the art of saying the same thing in different words” - B. Russell

  3. #3
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    0: P(1 + r)^0 (that's NOW)
    1: P(1 + r)^1
    2: P(1 + r)^2
    keep going...
    n: P(1 + r)^n
    I'm just an imagination of your figment !

  4. #4
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    Quote Originally Posted by Subhotosh Khan View Post
    .
    Would the following be correct? I want to see the (P + rP) or r(P + P) parts of the calculation used.

    Year------------Balance

    Now ------------P
    1 ---------------P + rP
    2---------------(P + rP) + r(P + rP)
    3---------------(P + rP) + r(P +rP) + r(P +rP)
    4---------------(P + rP) + r(P +rP) + r(P +rP) + r(P +rP)
    5---------------etc.

  5. #5
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    Well then, using P=1000 and r=.10, balances will be:
    0: 1000.00
    1: 1100.00
    2: 1210.00
    3: 1331.00
    4: 1464.10

    Check your results; if you get above, yer correct!
    I'm just an imagination of your figment !

  6. #6
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    Quote Originally Posted by KWF View Post
    Would the following be correct? I want to see the (P + rP) or r(P + P) parts of the calculation used.

    Year------------Balance

    Now ------------P
    1 ---------------P + rP
    2---------------(P + rP) + r(P + rP)
    3---------------(P + rP) + r(P +rP) + r(P +rP) .... Incorrect .... (P + rP) + r(P +rP) + r[(P +rP) +r(P+rP)]
    4---------------(P + rP) + r(P +rP) + r(P +rP) + r(P +rP) .... Incorrect .... (P + rP) + r(P +rP) + r[(P +rP) +r(P+rP)] + r{(P + rP) + r(P +rP) + r[(P +rP) +r(P+rP)]}
    5---------------etc.
    .
    “... mathematics is only the art of saying the same thing in different words” - B. Russell

  7. #7
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    rP = short for rePeat ?
    I'm just an imagination of your figment !

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