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can someone explain to me when to use which interest formula:
I = Prt
A= P(1+rt)
A(t)= P(1+r/n)^rt
and any if I missed
I = Prt
A= P(1+rt)
A(t)= P(1+r/n)^rt
and any if I missed
QR question....cant figure it out
- Thread starter WayneSU
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You can use this to find out few things such as: Principal amount,time and future value
and to memorize this better by using initial letters you can use this formula: S=P(1+I)^n
S=future value
P=principal amount
I=interest
n=time
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I = Prt is the formula to find the simple interest only. Then whatever answer you get with this formula, you have to add to the principal amount to figure out what will be amount after x years.
A = P(1 + rt) is also used to find simple interest. But in this case whatever answer you get is the final answer (meaning its amount + interest)
A(t)= P(1+r/n)^rt is used to find compound interest. Whatever answer you get is the amount with interest included.
For example - Find simple and compound interest on $100 after 2 years at interest rate of 10%
Simple interest
I = Prt = 100 x 0.10 x 2 = 20 <--- this is the interest after 2 yrs. If the question were to ask would be the amount that the person has to pay after 2 yrs, the answer would be 100 + 20 = 120
OR
A = P(1 + rt) = 100 (1 + 0.10 x 2) = 120 <-- be careful this is the amount that the person has to pay after 2 years, whereas the question is asking what will be the interest after 2 yrs? In this case you have to subtract the principal amount. 120 - 100 = 20 <-- this is the simple interest after 2 years.
Compound interest
I = P [ (1 + r)^n -1]
= 100 [ (1 + 0.1) ^ 2 - 1]
= 21 <--- this is the compound interest after 2 years, if the question were to ask what would be the amount the person has to pay the answer would be 100 + 21 = 121
OR
A(t)= P(1+r/n)^rt = 100 ( 1 + 0.10/1) ^ (1 x 2) = 121 <--- amount to be paid after 2 years. What will be compound interest? 121 - 100 = 21
Hope this helps!
A = P(1 + rt) is also used to find simple interest. But in this case whatever answer you get is the final answer (meaning its amount + interest)
A(t)= P(1+r/n)^rt is used to find compound interest. Whatever answer you get is the amount with interest included.
For example - Find simple and compound interest on $100 after 2 years at interest rate of 10%
Simple interest
I = Prt = 100 x 0.10 x 2 = 20 <--- this is the interest after 2 yrs. If the question were to ask would be the amount that the person has to pay after 2 yrs, the answer would be 100 + 20 = 120
OR
A = P(1 + rt) = 100 (1 + 0.10 x 2) = 120 <-- be careful this is the amount that the person has to pay after 2 years, whereas the question is asking what will be the interest after 2 yrs? In this case you have to subtract the principal amount. 120 - 100 = 20 <-- this is the simple interest after 2 years.
Compound interest
I = P [ (1 + r)^n -1]
= 100 [ (1 + 0.1) ^ 2 - 1]
= 21 <--- this is the compound interest after 2 years, if the question were to ask what would be the amount the person has to pay the answer would be 100 + 21 = 121
OR
A(t)= P(1+r/n)^rt = 100 ( 1 + 0.10/1) ^ (1 x 2) = 121 <--- amount to be paid after 2 years. What will be compound interest? 121 - 100 = 21
Hope this helps!
