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

1. ## 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?

2. Originally Posted by KWF
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?
.

3. Originally Posted by Subhotosh Khan
.
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.

4. Originally Posted by KWF
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.
.

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