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compound interest-how do I work it out?

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  • grumbler
    grumbler Posts: 58,629 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    lipidicman wrote:
    Also, where did you come across the simplification of q + q^2 + q^3+ q^4..... to get the final formula? Im have to verfied it, but havent found a derivation!
    Look, for example, HERE. Thank you for support! :beer:
  • How do I work out the total
    of say £10 per week for 10 years @ 5% PA?
    keep it simple please

    Perhaps this is a bit simpler!
  • lipidicman
    lipidicman Posts: 2,598 Forumite
    grumbler wrote:
    Yes
    A*q*(q^N-1)/(q-1) means A*q*[(q^N)-1)]/(q-1)
    However, the first expression is perfectly correct... :think:

    Dude, I know you were right - all I was saying is that when you have to use ^ on this forum the extra brackets make it clearer for everyone. And thanks for the link for the sum of the geometric series!

    Brightonlad - simpler, yes but it dont learn ya nuffink! and how do you know it is programmed right!?
  • BrightonLad
    BrightonLad Posts: 240 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    Brightonlad - simpler, yes but it dont learn ya nuffink! and how do you know it is programmed right!?
    fair comment, i remember doing compound interest in GCSE maths, but would only be able do it now a long way round. thought i was pretty good at maths once upon a time! perhaps it should be evening classes for me!
  • lipidicman
    lipidicman Posts: 2,598 Forumite
    Maybe Grumbler's offering classes? He is doing well so far!
  • lily10
    lily10 Posts: 32 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    I have read the article on compound interest and am tying myself in knots!
    Can anyone help me with the following:
    I am lending £10,000 to my husband's business . We have agreed that he will pay interest at 3% above base ( cheaper than bank charges) .
    Currently base is 4.75% so interest will be 7.75% AER ( or is it APR?)
    How do I calculate the compound interest on a monthly basis? this is because we have no definite time period for him borrowing the money - we may need to draw capital/interest as and when we need it, so I need to be able to see a monthly interest charge which i will either draw from the business as income or leave in the business to earn further interest.
    Thanks for anyone's help :o
  • If you are charging it monthly, then the monthly interest rate you need to compound up to 7.75% (APR) is (in general)

    annual interest rate = r

    (1+r)^(1/12)-1

    So in your case this is 1.0775^(1/12)-1 = 0.624% per month.

    So in the first month the interest payable will be £10000*.00624 = £62.40.

    Remember to fill in a tax return to pay the tax though!
    I'm an Investment Manager. Any comments I make on this board should be not be construed as advice, and are for general information purposes only.
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