Compound interest?

Question

paul has deposited money in a savings account paying interest at 5% per annum, compounded semi-annually. If the money was invested at 5% per annum, compounded annually, would it amount more or less in the same time period?

.... can you give an example ><

what about if it were compounded quarterly?

Answer 1

V=Value after a period

A=Amount of Initial Investment

R=Rate (Interest)

N=Number of Compounding Periods per Year

Y=Number of years

V=A*[1+(R/N)]^(N*Y)

In your case:

1) R=5% (or 0.05); N=2 (twice a year); Y=1; V=A*[1+(0.05/2)]^(2*1)=A*[1.025]^2

V=A*1.050625

2) R=5%; N=1 (once a year); Y=1; V=A*[1+(0.05/1)]^(1*1)=A*[1+0.05]^1

V=A*1.05

3) R=5%; N=4 (quarterly); Y=1; V=A*[1+0.05/4]^(4*1)=A*[1.0125]^4

V=A*1.0509452

You can see that the more the Compounding periods, the larger the value after a period (in this case 1 year)