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How Do You Use the Formula for Compound Interest?

What is the total amount of money in an account where $600 is invested at an interest rate of 4.6% compounded annually for 60 months?

Summary

  1. A is the account balance or total amount of money
  2. P is the Principal
  3. r is the annual interest rate
  4. t is time in years
  5. Make sure you remember to convert the time into years when you're working with annual interest!
  6. ≈ means approximately equal to

Notes

    1. Known Variables: P (principal), r (rate), t (time in years)
    2. Unknown Variable: A (account balance or total amount of money in the account)
    3. mo- months, yr- years
    4. Remember, there are 12 months in a year, so 60 months is 5 years!
    1. P=$600 r=0.046 t=5 years
    1. (1+0.046) is the 1st operation
    2. 5th power refers to the exponent 5
    3. ≈ means approximately equal to
    1. A = $751.29