Compund interest compunded quarterly?

solidsnoop29 · #1 $Old$ November 5th, 2009, 10:16 AM

Compund interest compunded quarterly?

from using the forumla

AT= a0(1+i)^t

2 hours ago
- 4 days left to answer.

Additional Details

I dont get it. Is the present value is 8,000, i= 5.5% p.a. compounded quarterly for 2 years then will that mean that

present value is 8,000, i= 5.5 divded by 3 (since there are 3 quarters in a year, ...3 months is one quarter of a year).

And the time period will be 6 quarters, since there are 6 quarters in 2 years?
2 hours ago
ok so if i was to implement all this in the formula =

at=a0 (1+i)^t

How would this work?

Wilmer · #2 $Old$ November 5th, 2009, 11:13 AM

Quote:

Originally Posted by solidsnoop29 $View Post$

Compund interest compunded quarterly?
from using the forumla
AT= a0(1+i)^t

2 hours ago
- 4 days left to answer.

Additional Details
I dont get it. Is the present value is 8,000, i= 5.5% p.a. compounded quarterly for 2 years then will that mean that
present value is 8,000, i= 5.5 divded by 3 (since there are 3 quarters in a year, ...3 months is one quarter of a year).

And the time period will be 6 quarters, since there are 6 quarters in 2 years?
2 hours ago
ok so if i was to implement all this in the formula = at=a0 (1+i)^t
How would this work?

Are you serious or joking?
To start, there are 4 quarters in a year.

What's the meaning of your "2 hours ago" ?

If you want help, please re-post your problem CLEARLY.

All I can do for you now is:
if rate is 12% annual compounded quarterly,
then effective rate is (1 + .12/4)^4 - 1 = 1.03^4 - 1 = .1255 (12.55%)

solidsnoop29 · #3 $Old$ November 5th, 2009, 12:26 PM

Quote:

Originally Posted by Wilmer $View Post$

Are you serious or joking?
To start, there are 4 quarters in a year.

What's the meaning of your "2 hours ago" ?

If you want help, please re-post your problem CLEARLY.

All I can do for you now is:
if rate is 12% annual compounded quarterly,
then effective rate is (1 + .12/4)^4 - 1 = 1.03^4 - 1 = .1255 (12.55%)

I appreciate your help,

sorry I had to copy everything from what I posted in yahoo answers, that explaisn why it says 'posted 2 hours ago.'

I get confused in what measurement to use. For example, when using the foruma

at=A0(1+i)^t,

at= future value, a0= present value, i= interest rate, t= time period.

For this situation, as it asks me to compound quarterly, I would change the interest rate to suit it every quarter of a year so to do that I would do, 12% / 4 (since there are 4 quarters in a year) and the time period will be 8, as 2 years has 8 quarters?

2) Also If a question asked me to compound 600,000 at 8% p.a to be compounded every 2/5 of a year for 2 years, what will 'i' be, and what would the time period be?

I don't know how to convert different measures.

Wilmer · #4 $Old$ November 5th, 2009, 01:12 PM

Quote:

Originally Posted by solidsnoop29 $View Post$

at=A0(1+i)^t,
at= future value, a0= present value, i= interest rate, t= time period.
For this situation, as it asks me to compound quarterly, I would change the interest rate to suit it every quarter of a year so to do that I would do, 12% / 4 (since there are 4 quarters in a year) and the time period will be 8, as 2 years has 8 quarters?

Yes; but .12/4, not 12/4.
So $5000 at 12% compounded quarterly over 8 years:
5000 * (1 + .12/4)^(8*4) = 5000 * 1.03^32 = 12875.41378....

solidsnoop29 · #5 $Old$ November 5th, 2009, 01:17 PM

8 years?

The reason I said 8 is because the time period must change to quarters. The time (T) should be suitable with the interest rate (i), (I) is the rate for quarterly, and the time period becomes quarterly to. Since its 2 years, i change it to 8 quarters, as there are 4 quarters in a year, 2 years must have 8 quarters....right?

Wilmer · #6 $Old$ November 5th, 2009, 01:58 PM

Quote:

Originally Posted by solidsnoop29 $View Post$

2) Also If a question asked me to compound 600,000 at 8% p.a to be compounded every 2/5 of a year for 2 years, what will 'i' be, and what would the time period be?

i will be .08/(5/2)
(2/5 is inverted, same as 1/4 for quarter of year is inverted to 4)
t will be 2 / (2/5) = 5

600000 * (1 + .08/(5/2))^5 = 702343.77

5 interest credits will be made, this way:

Code:

0                 600,000.00
1     19,200.00   619,200.00
2     19,814.40   639,014.40
3     20,448.46   659,462.86
4     21,102.81   680,565.67
5     21,778.10   702,343.77

Wilmer · #7 $Old$ November 5th, 2009, 02:02 PM

Quote:

Originally Posted by solidsnoop29 $View Post$

8 years?
The reason I said 8 is because the time period must change to quarters. The time (T) should be suitable with the interest rate (i), (I) is the rate for quarterly, and the time period becomes quarterly to. Since its 2 years, i change it to 8 quarters, as there are 4 quarters in a year, 2 years must have 8 quarters....right?

C'mon Snoop: I simply used 8 years as an EXAMPLE.
Of course 2 years would have 8 quarters...but 8 years has 32; kapish?

solidsnoop29 · #8 $Old$ November 5th, 2009, 02:38 PM

Thanks alot mate