Compound Interest Examples
Compound
interest is calculated by the following formula
Future value
= P (1+r) n
P= Present Value
r= rate of interest
n= number of period
Compound Interest Example # 1
|
Deposit
|
$
300,000
|
|
Interest Rate
|
15%
|
|
Interest Nature
|
Compound
|
|
Calculate interest for
|
4 years
|
|
|
|
Solution
Future value
= P (1+r) n
= $ 300,000(1.15)4
=$ 524,702
Interest =
future value – present value
= 524,702-300,000
=$ 224,702
Compound Interest Example # 2
|
Year 1
|
100,000
|
|
|
Year 2
|
150,000
|
|
|
Year 3
|
120,000
|
|
|
Year 4
|
110,000
|
|
|
Interest Rate 15%
|
480,000
|
|
Calculate
the future value?
Solution
|
Year 1
|
100,000
|
(1+i)4
|
174,900
|
|
Year 2
|
150,000
|
(1+i)3
|
228,131
|
|
Year 3
|
120,000
|
(1+i)2
|
158,700
|
|
Year 4
|
110,000
|
(1+i)1
|
156,500
|
|
|
|
|
718,231
|
