Question

Explain why the amount of money in the account at the end of t years is given by the formula:

Answer 1

Answer:

Step-by-step explanation:

The initial amount invested is P0

Say it is compounded periodically either quarterly or monthly or semi annually with interest r%

If for a period interest is r%

Then after first period principal = principal+simple interest

=$P_{0}+\frac{P_{0}r }{n}$

where n is the no of times in a year it is compounded. n = 4 if quarterly, 12 if annually, etc

At the end of II period we have

Principal =$P_{0}+\frac{P_{0}r }{n}$

So for interest again the process is repeated

Thus we repeat this nt times which result in power with nt

Hence the formula