Interest on Term Deposit accounts

[tom82]

Is there a book that contains useful formula to calculate these sorts of problems?

 

[McLovin]

So does that mean they only compound on the day they pay the interest?

Yeah, otherwise you'd be earning interest on interest that hasn't been paid to you.

 

[tom82]

You got to use brackets or simplify it before you plug it into the calculator..

Try

A=$100(1+(.025))^20

Or even

$100(1.025)^20



Yeah, otherwise you'd be earning interest on interest that hasn't been paid to you.

Yes i did use brackets. This time I got 1.63 and * 100 for 163.86.

If the number of periods in the year it was being compounded was 4, where do you get 20 from?

 

[McLovin]

Yes i did use brackets. This time I got 1.63 and * 100 for 163.86.

If you enter the forumla correctly you'll get 163. [hint it's the first part of the equation!]

If the number of periods in the year it was being compounded was 4, where do you get 20 from?

Because it compounds 4x/year for 5 years...4*5=20

 

[tom82]

So how many compounding periods are when the term is less than a year?
1?

Lets say one has $10 000, interest of 3.15% for 180 days.

Interest rate = 3.15%
period of time= 180 days
Principal = 10 000

 

[McLovin]

So how many compounding periods are when the term is less than a year?
1?

Lets say one has $10 000, interest of 3.15% for 180 days.

Interest rate = 3.15%
period of time= 180 days
Principal = 10 000

Well you have the interest rate, all you need is to know how often the bank pays the interest.

If it's monthly then the monthly interest rate is .002625, and if it's in there for 180 days that's six months, so six compounding periods.

 

[tom82]

Well you have the interest rate, all you need is to know how often the bank pays the interest.

If it's monthly then the monthly interest rate is .002625, and if it's in there for 180 days that's six months, so six compounding periods.

Where and how do you get the 0.002625?

 

[McLovin]

Where and how do you get the 0.002625?

Come on dude this isn't rocket science.

.0315/12...

 

[tom82]

So how many compounding periods are when the term is less than a year?
1?

Lets say one has $10 000, interest of 3.15% for 180 days.

Interest rate = 3.15% becomes 0.0315 / 12 = 0.002625
period of time= 180 days
Principal = 10 000

But one has to know when and how to convert amounts from the total percentage to a monthly percentage.
If one has all the information to begin with it would be straight forward to calculate but even that website that was linked to does not go into enough detail, not all the steps are shown. If one doesn't know they have to break something down further how can they get the correct answer. If all the steps were shown clearly it would help.

I do appreciate your time and assistance with this!

Interest rate = 3.15% becomes 0.0315 / 12 = 0.002625
period of time= 180 days
Principal = 10 00

x=10 000(1+0.002625)^6
x=1.0158537218457713417591896057129 * 100
x= 101.58

Not sure that looks right.