Question

Calculate the future value of $51,123.21, earning interest at a rate of that is compounded daily for 20 years and 2 months (use the traditional Banker’s rule of 30 days per month).

Answer 1

The compound interest formula is : $A = P(1+ \frac{r}{n})^n ^t$

where, A= Future value including the interest,

P= Principle amount, r= rate of interest in decimal form,

t= number of years and n= number of compounding in a year

Here, in this problem P= $ 51,123.21 , t= 20 years and 2 months

So, t= 20 + (2/12) years

t= 20 + 0.17 = 20.17 years

As the amount is compounded daily, so n= (12×30)= 360 [Using the traditional Banker’s rule of 30 days per month]

Thus, $A = 51,123.21( 1+ \frac{r}{360})^3^6^0^*^2^0^.^1^7$

$A= 51,123.21 (1+\frac{r}{360})^7^2^6^1^.^2$

When the interest rate is given, then we can use this equation for finding the future value.