Finding time(n) in compound interest Two methods

[Pages:11]Finding time(n) in compound interest

Two methods: 1. trial and error 2. logarithms

Trial and error So far n has always been an integer. Calculating n will be decimal value, like 12.671. Lie between two integer values, just as 12.671 lie between 12 and 13. Smaller integer represents insufficient time, Bigger integer represents more than enough time.

Guesswork to determine n. Some hints: small interest rate may indicate a large value of n the greater the frequency, the greater the value of n

Trial and error example

Trial and error example p.671

interest rate per period : interest rate per annum

= number of interest bearing periods per year

Trial and error - Exercise 14C (1a, 2b, 4a,f, 9), p.673 interest rate per annum

= number of interest bearing periods per year

Finding time (n) using logarithm (log) Log is a special function just as sin and cos. It is on your calculator: log(10) = 1, log(100) = 2

It will make it easier for us to calculate n (no guesswork). One log rule to know: Example:

Log example

Log example, p.676 interest rate per annum

= number of interest bearing periods per year

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