Answer to Question #196114 in Financial Math for Zethembiso

Question

Calculate the extra compound interest received when R18 400 invested at 13,2% per annum for 11,5 years interest rate paid annually is invested at the same rate but with interest paid monthly

Answer 1

First, convert R as a percent to r as a decimal

r = R/100

r = 13.2/100

r = 0.132 rate per year,

$A = P(1 + \frac{r}{n})^{nt}$

A=final amount

P=initial principal balance

r=interest rate

n=number of times interest applied per time period

t=number of time periods elapsed

interest rate paid annually

$A = 18,400(1 +\frac{ 0.132}{1})^{(1)(11.5)}$

$A = 18,400(1 + 0.132)^{(11.5)}$

$A = \$76,568.78$

$interest=amount-principal$

$=76568.78-18400=58168.78$

$interest = \$58,168.78$

interest paid monthly

$A = 18,400(1 +\frac{ 0.132}{12})^{(12)(11.5)}$

$A = 18,400(1 + 0.011)^{(138)}$

$A = \$83,267.84$

interest=amount-principal

$=83,267.84-18400=64867.84$

$interest = \$64,867.84$

extra compounding interest

$64867.84-58168.78=6699.06$

$=\$6699.06$