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The formula...

 Mar 20, 2019
 #1
avatar+19912 
+2

That is a compound interest formula     r is the ANNUAL rate    n is the number of compunding periods per year    and t is the number of years.

 Mar 20, 2019
 #2
avatar+49 
-6

Alright, then but what can this formula help to calculate? I'm still a bit confused...

GAMEMASTERX40  Mar 20, 2019
 #3
avatar+6046 
+1

It's an effective annual rate.

 

Suppose we had 5% interest.

 

Compounded quarterly we'd have an effective annual rate of 

 

\(\left(1+\dfrac{0.05}{4}\right)^4 -1= 0.0509453 =5.09453\%\)

 

Compounded monthly 

 

\(\left(1+\dfrac{0.05}{12}\right)^{12} -1=0.0511619 = 5.11619\%\)

Rom  Mar 20, 2019

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