ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The compound interest formula is:Fv = Pv(1 + i/n)nkWhat does the “n” represent?
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The amount of interest earned.
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The amount of time that has passed.
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The number of compounding periods per year.
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The amount initially invested.
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Explanation:
Detailed explanation-1: -P stands for principal; i stands for interest; n stands for the number of compounding periods.
Detailed explanation-2: -In its most basic form, the formula for future value (FV) is FV= PV*(1+i)^n, where “PV” equals the present value, “i” represents the interest rate and “n” represents the number of time periods.
Detailed explanation-3: -With monthly compounding, for example, the stated annual interest rate is divided by 12 to find the periodic (monthly) rate, and the number of years is multiplied by 12 to determine the number of (monthly) periods.
Detailed explanation-4: -r = the interest rate. n = the number of times that interest is compounded per period. t = the number of periods.
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