Sir in bpp kit there is a question if a single sum of 12k is invested at 8% per year with interest compounded quarterly what is amount to which principal will have grown by the end of year 3
Correct answer is 15219 but my answer is not coming this
((1+ 8% divided by 4 )power 12 as in 3 years 12 quarters come then minus 1 and multiply by the principle amount 12000 but answer not coming
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Chapter 12 budgeting
4y ago#1The interest per quarter is 2%.
Therefore after 12 quarters at. 2% per quarter the principal will have grown to 12,000 x (1.02^12) = 15,219.
And sir in text the formula is (1+I/n)-1 so why are u doing -1
I mean why are not using -1 .
Look sir there is a question society adds interest monthly to investors accounts even though interest rates are expressed in annual terms the current rate of interest is 6% per year .
Investor deposit 1k on 1 jan how much interest will have been earned by 30 June so why are we using -1 in this question what’s the difference that not using -1 in above question and using in this
4y ago#4You must not simply learn formulae - the examiner sets questions so as to check that you understand what you are doing and not just applying formulae.
Subtracting 1 is calculating the effective rate of interest. So the effective rate of interest is indeed (1.02^12) - 1 = 0.2682 (or 28.62%). Therefore the interest over the whole period will be 28.62% x 12,000 = 3,219.
However this is not what the question is asking for. It is asking what the $12,000 will have grown to and with interest it will have grown to 12,000 + 3,219 = 15,219 as I wrote before.
Have you watched my free lectures on interest? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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