subject: Compound Interest Problems: Formulas And Tips [print this page] Compound interest problems are easily solved with the right compound interest formula. The known common compound interest problems are mostly regarding with how many time the compound happens in an investment or a loan. To make it more clear, in a loan, the one who is in debt and the money lenders will have an agreement. In this agreement, they will agree on a period time of loan wherein it has an interest compounding every year, twice a year or even four times a year. This process is done until the loan is paid off.
It is also good to remember about solving compound interest problems is the principal amount. We know that it is the original loan amount. But do you know that it changes after interest has been compounded? Yes, that is correct. When the interest compounds and the principal will have added cash on it then that will be your new principal amount. It is good to take note of this as there will be 2nd to the 10th time or more that it gets compounded in some compound interest problems.
Remember that there is also one thing you need to know about compound interest problems. Do you know what part of most compound interest problems is the mere compound interest? It is the result of the difference from the total loan amount to the original loan amount. There are also times that it will be abbreviated as CI. Take note of this because simple things like this could still lead to a wrong answer!
Here Is The Formulas For The Different Compound Interest Problems Regarding The Times Of Compounding:
Wherein:
P is the Principal amount
R is the Rate of Interest
T is the Time period
n is the times that interest is compounded
Compound interest problems where interest is compounded yearly:
Amount = P[ 1 + (R/100)]n
Compound interest problems where interest is compounded every half a year:
Amount = p[ 1 + (R/2)/100]2n
Compound interest problems where interest is compounded every four months:
Amount = P[ 1 + (R/4)/100 ]4n
Did you know that there are still other types of the times of compounding? We will also give you their formulas. However, it is not usually asked in compound interest problems. But knowledge is all good. So here are some of the formulas for the not so common types. Be sure to learn them as they are still of good use to each and everyone especially those who will be or are currently enrolled in a loan.
For fractions:
Amount = P{ [1 + (R/100)]3 x [ 1 + (2R/5)/100] }
For different rates on the first to the third year:
