Question

I would like to know what 12% compounded monthly over 5 years totals out to be. Please show all work.

Answer 1

Ans. Compound interest in simple terms means interest on interest. When the principal includes the accumulated interest of the previous periods and interest is calculated on this then they say it’s compound interest. Compounding is done on loans, deposits and investments. Frequency of compounding is basically the number of times the interest is calculated in a year. Daily, weekly, monthly, quarterly, half-yearly and annually are the most common compounding frequencies.

Compound interest can be calculated with simple formula i.e Compound interest = Total amount of Principal and Interest in future ( Future value) - Principal amount at Present value.

For example: Suppose An investment of Rs.100000 for 5 years at 12% rate of return Compound annually is worth Rs. 1,76,234.

Year Investment     Interest Maturity

1 1,00,000 12000    1,12,000

2    1,12,000     13,440    1,25,440

3    1,25,440     15,052.8 1,40,492.8

4 1,40,492.8    16,859.14 1,57,351.9

5    1,57,351.9     18,882.23 1,76,234.2.

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