We use cookies to personalise content and advertisements and to analyse access to our website. Furthermore, our partners for online advertising receive pseudonymised information about your use of our website. cookie policy and privacy policy.

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

6 Online Users