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COMPOUND INTEREST
Calculate the new balance on a deposit which is compounded quarterly for 4 years at a
given annual interest rate.
SOLUTION: 1. Calculate the quarterly interest rate.
2. Calculate the new balance (principal plus interest).
FORMULA: New balance = P (1 + i)
n
Where P = amount of deposit (principal)
i = interest rate per period
n = number of years × 4
EXAMPLE: If P = $6,150
i = 5% annum
÷
4 periods = 0.0125
n = 16 (4 years × 4)
Then 6,150 (1.0125)
16
.
=
.
$7,502.32 (New Balance)
(QS-2760H/2770H):
OPERATION DISPLAY PRINT
.05 0.05 0
.
05
÷
Annual int. rate
4 4
.
=
0
.
0125 Quarterly int. rate
0.0125
0.0125 0
.
0125 +
1 1.0125 1
.
+
1
.
0125
◊
(1 + i)
1.0125 1
.
0125 ×
1
.
0125 =
1
.
02515625 (1 + i)
2
1.02515625
1.02515625 1
.
02515625 ×
1
.
02515625 =
1
.
05094533691 (1 + i)
4
1.05094533691
1.05094533691 1
.
05094533691 ×
1
.
05094533691 =
1
.
10448610117 (1 + i)
8
1.10448610117
1.10448610117 1
.
10448610117 ×
1
.
10448610117 =
1
.
21988954767 (1 + i)
16
1.21988954767
1.21988954767 1
.
21988954767 ×
6150 6
,
150
.
= Principal
7
,
502
.
32071817 New Balance
7,502.32071817