Compound

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Compound Interest
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5,000 at 7.5 for 3 years compounded monthly
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Compound interest payments are
(3 x 12)
12 indicates 12 compounds per year, or monthly
compounding
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5,000 at 7.5 for 3 years compounded monthly
5,000 ( 1 .00625 )
.075 12
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5,000 at 7.5 for 3 years compounded monthly
5,000 ( 1 .00625 )
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5,000 at 7.5 for 3 years compounded monthly
5,000 ( 1.00625 )
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5,000 at 7.5 for 3 years compounded monthly
5,000 ( 1.251446 ) 6,257.23
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5,000 at 7.5 for 3 years compounded monthly
6,257.23 - 5,000.00 1,257.23
PI Principal Interest
P Principal
I Interest alone
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Compound interest payments are
M onthly I nterest R ate
(years compounds) life of loan
.075 12
rate compounds


life
5,000 (1 MIR )
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Relationships
MIR (rate / compounds)
LIFE (years compounds)
Special considerations for daily compounding
The MIR denominator is 360 and the compounds in
the exponent is 365 for daily interest.
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Think about the relationships in this problem.
There are four variables in various combinations
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Principal Interest Rate Number of
compounds Number of years
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End