This Compound Interest problem will make you CRY - Bootcamp

[JohnTulisa]

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So, I was being a good ol boy doing my QR on bootcamp, when I came across this problem:

Now I understand everything Ari did up here because you want to make your interest rate reflects the number of times you compound it for a 1 year (which is 12 times).

Out of curiosity, I looked online for other examples and came across this one:

Both of Ari's question and this question is similar in that both compounds monthly... but if you use Ari's method for Plan 1, you will get a totally different answer...

SO WHICH METHOD DO I USE???? T_T

 

[zhngbrg]

In the example you found online, it's implied that the given rate is the annual rate, not the monthly rate. So for plan 1, the monthly rate would actually be the annual rate/12, since there's 12 months in a year, so 1+r/n = 1 + .06/12. In Ari's example he was kind enough to directly give you the monthly rate, which is why you divide by 1 (aka do nothing).