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Compound Interest

The document provides examples of calculating compound interest and appreciation over multiple years. It gives the formula for calculating interest in the first year, adding it to the principal, and then calculating interest on the new principal plus interest from the first year for the second year. Similar calculations are shown for finding the value of an appreciating asset, such as land, over multiple years by applying the annual appreciation percentage to the original price each year to determine the new value.

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30 views

Compound Interest

The document provides examples of calculating compound interest and appreciation over multiple years. It gives the formula for calculating interest in the first year, adding it to the principal, and then calculating interest on the new principal plus interest from the first year for the second year. Similar calculations are shown for finding the value of an appreciating asset, such as land, over multiple years by applying the annual appreciation percentage to the original price each year to determine the new value.

Uploaded by

bigmike459
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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November 2, 2010

COMPOUND INTEREST

e.g. (1) Find the compound interest on $900 for 2 years at 5 % per annum

1st year principal $900.00


1st year interest +$ 4 5 . 0 0 5 x 900 = $45.00
100 1
2nd year principal $945.00
2nd year interest +$ 4 7. 2 5
5 x 945 = 47.25
Amount $ 9 9 2. 2 5 100 1
– $ 9 0 0 .0 0
Compound Interest $ 92.25

(1) Find the Compound Interest on $3000 for 3 years at 12 % per annum.

1st year principal $ 3 0 0 0 .0 0


1st year interest + $ 3 6 0 .0 0
2nd year principal
2nd year interest +
3rd year principal
3rd year interest +
Amount
– $ 3000.00
Compound Interest

(4) If the value of land increases in value (appreciates) by 14 % every year, what is
the present value of a plot of land which cost $30,000 2 years ago?

(5) A rare postage stamp which cost $5.00 appreciates by 10% every year. How much
will it be worth 3 years from now?

(6) A house was bought for $70,000. If the value of the house is expected to
appreciate at a rate of 3 % per annum, how much will it be worth in two years
time?

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