Why does A=p(1+(r/n))^nt give me the correct answer when compounding interest annually, weekly, etc, but A=p(r)^nt only works annually?
The first formula is what I remember from previous years, and the second is what my book gives me to solve.
Because you making some mistake somewhere! If you give us the numbers you are trying to calculate, then will show you where your mistake is.
+118724 Hi :)
Why does A=p(1+(r/n))^nt give me the correct answer when compounding interest annually, weekly, etc, but A=p(r)^nt only works annually?
The first formula is what I remember from previous years, and the second is what my book gives me to solve.
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I don't think that the second forumuar is correct, not for compound interest anyway.
Sometimes you see A=p(1+r)^n
If you take this as meaning r= annual interest rate as a decimal and n is the number of years invested then it is only good for annual investments. It is often used this way when students are first introduced to compound interest.
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Your other formula is just a general purpose formula that can be used for any compounding periods.
If you really understand what you are doing then you may just like to use this formula A=p(1+r)^n
BUT r must be the rate for the compounding period (not the yearly one) and n must be the number of compounding periods (not tne number of years)
The number of compounding periods is always going to be the number of years times the number of times interest is added each year which is called nt in your original formula
AND
the interest rate is always going to be the number of years divided by the number of times interest is added each year. which is called n/t in your original formula.
That is how I think of it.
However,
if you are really comfortable with your original formula p(1+(r/n))^nt you should probably just keep using it. :)
Does that make sense?
