Answer to Question #320615 in Mechanical Engineering for Jhonny

Question

5.) A student will receive P3,000 at the beginning of each 3 months for 4 years. What is the sum of

this annuity at the end of the 4th year if the interest rate is 6% compounded quarterly?

Ans. 54,604.07

Answer 1

Types of Compound Interest

There are generally two types of compound interest used.

Periodic Compounding - Under this method, the interest rate is applied at intervals and generated. This interest is added to the principal. Periods here would mean annually, bi-annually, monthly, or weekly.

Continuous Compounding - This method uses a natural log-based formula and calculates interest at the smallest possible interval. This interest is added back to the principal. This can be equalled to the constant rate of growth for all natural growth. This figure was born out of physics. It uses Euler’s number which is a famous irrational number which is known to more than 1 trillion digits of accuracy. Euler’s number is denominated by the letter “E”.