Compound Interest
Compound Interest
Formula
Example 1
You are investing $1250 into an account that yields3%, compounded monthly, and you plan to invest for a total of 3 years. How much money will you have at the end of the three years?
Step 1. Identify the variables.
A is the ending amount, this is what you are trying to determine.
P is the beginning amount, in this case $1250.
r is the interest rate written in the form of a decimal, in this case 0.03.
t is the time in years, in this case 3 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 into the formula.
Step 3. Calculate the formula, you may need a calculator.
