SAT Math Question (10) - The Interest Equation
My next lesson for Steemit is the compound interest formula. This is the formula of wealth, so learn it well for yourself! This will be the base of my next contest! Here is how it works...
Example 1 (the long way)
If Jay invests 100,000 in a savings account that accumulates 3% interest every month, then how much does he have at the end of the year?
- We can multiply by 1 plus the rate (1.03 or 103%) first. This will give us his new account value after a month.
- The next month Jay accumulates another 3% interest on the new number, so we multiply by 1.03 again.
- The next month Jay accumulates another 3% interest on the new number, so we multiply by 1.03 again. You can see the pattern, so our answer is:
100,000(1.03)(1.03)(1.03)(1.03)(1.03)(1.03)(1.03)(1.03)(1.03)(1.03)(1.03)(1.03). In better terms:
which equals 142,576.09. Not bad for some interest, but a real account would do this over a period of 12 years.
The Equation(s)
There are two equations depending on how many times a year the interest is added... The more the better. The first equation is if they give you the number of times compounded per year.
- P is the total in the end.
is the initial (beginning) investment.- n is the number of times compounded in the year (Quarterly - 4, monthly - 12, annually - 1, ...).
- r it the rate of interest. Remember to move the decimal 2 places!
- t is time in years.
This equation is for a problem that says "compounded continuously":
- e is a constant like pi, about 2.72.
Example 2
Eric, Kyle, Stan, and Kenny want to invest 200 dollars at a 4.5% annual interest rate. The bank they went to compounds semiannually. If they forget they opened the account, how much do they have in 10 years?
Givens
- Po = 200
- r = .045
- n = 2 (semiannually)
- t = 10
Simplify & Solve
Thus, the final answer is $312.10.
Once you get enough money in the bank you can live off the interest kids! Be a millionaire!
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Too bad interest rates are at record lows :( I remember when you could get 4-5% when I was a kid and in my CD I think I got something like 7%
4-5% is pretty amazing now. Maybe it will go back up again, but I doubt it. I went to my bank once to look at good CD and just walked out after I did the math. Haha. Worthless. Just put it in coins and silver.
Thank you steemiteducation!!!
Thanks @hansenator! Do you have a formula for the negative interest rates that some of the banks are now contemplating because of their bad fiscal policy? So far my investments in crypto have far outstripped any interest the banks would give...
Too bad we can't predict returns on bitcoin very well, but I'm convinced that one of these blockchain based currencies is going to cause infrastructure inversion to the banking systems of the world.
I agree with you on that zoidsoft! The negative interest rates would use the same equation, just plug in the negative rate. Crypto is going to dominate. I think the world is going to go for a 1 world currency... We found it!
Well I just hope we are able to maintain control of our PII. With Equifax and other types of centralized data collection it will lead to panopticon and endless hacks. Smarter for a one world currency would be to decentralize PII the way bitcoin does, but I worry that FedCoin might try to be a replacement. It's a good thing bitcoin code is in the wild which will force central authority to shut down the internet and commit banking suicide.
Definitely a new world with new problems... For sure! We will see how it evolves. Hopefully well! Haha. I'm vested.
Wow nice 👍 , well understood . Followed kindly follow back .
Thank you rufans! I appreciate the nice comment! Best wishes to you on the start of your steemit journey.
Nice post!
South park reference! Hahah :D
Haha. I love South Park! Glad you liked it!