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The formula...

 Mar 20, 2019

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

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

GAMEMASTERX40  Mar 20, 2019

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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