Compound Interest
Compound Interest
Formula
Example 2
Suppose that you plan to need $10,000 in thirty-six months' time when your child starts attending college. You want to invest in an instrument yielding 3.5% interest, compounded monthly. How much should you invest?
Step 1. Identify the variables.
A is the ending amount, in this case $10,000.
P is the beginning amount, this is what we are trying to determine.
r is the interest rate written in the form of a decimal, in this case 0.035.
t is the time in years, in this case 
years.
n is the number of times compounded per year, in this case it is being compounded monthly and therefore n = 12.
Step 2. Substitute the variables in to the formula.
Step 3. Calculate the formula, you may need a calculator.
You need to invest about $9004.62.