Compounding interest, Future Value, Present Value

Compounding Interest is "(principal+interest) * interest rate and on and on "

using simple interest, if principal = $ 100, interest = 10% p.a. , period = 3 yrs, FV should be

100 [ 1+ 3(0.1)] = 130

BUT for compounding interest, the FV is $133.10. This is because the formula is

STEP-BY-STEP CALCULATION:



USING FINANCIAL CALCULATOR ( BA II PLUS):

PV = 100, i = 10% , n = 3 YRS

PRESS:~

• [2ND] [CLR TVM] to clear memory
• 100 [+|-] [PV] present value put -ve
• 3 [N] this is period
• 10 [I/Y] interest rate, NOTE: do not put 0.1 for 10%, just put 10 for 10%
• [CPT] [FV]

Then you will see the answer is 133.1


----------------------------------------------------

FV = future value
PV=present value
n=tenure
i = interest
CPT= compute