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interes
Compound Interest
Suppose that instead of collecting interest
5.5 / 4 1.375%
Compound Interest
So for our IRA account of $5000 at the end of
F1 5000
0.055
1
41
$5280.72
F10 5000 1
410
$8633.85
r
F P 1
n
Compound Interest
Formula
Notice that when we collected our
Continuous Compounding
As n increases, approaches a constant value
in the Frequency Worksheet. Heres why:
r
P 1
n
nt
P 1
m
mrt
1
P 1
m
rt
1
1
m
2.71828182845905 e
Continuous Compounding
The value of P dollars after t years,
when compounded continuously at an
annual rate r , is
rt
F Pe
Yield
The effective annual yield, y, for
r ln y 1
Present Values
If we are given the future value, F, the
P F 1
n
P F e r t
Ratios
Sometimes we are not interested in the
e rt
Example Ratios
Suppose that in our IRA example, the
Example Ratios
Multiplying by this weekly ratio 52 times yields a