# Compound Interest (Finite Number of Calculations) - Concept

###### Explanation

One real world application of exponential equations is in compound interest. The formula for compound interest with a finite number of calculations is an exponential equation. We can solve for a parameter of this equation, and can use logarithms to access parameters in the exponent. Students may be asked to solve **compound interest** problems with interest compounded biannually, monthly, or daily.

###### Transcript

Compounding interest, so what compounding interest is basically you have an investment you put a certain amount of money into an account and interest is calculated a set number of times per year okay? So what we're dealing now is this formula right here is for a set number of times that interest is calculated. It could be daily, monthly, weekly, annually once a year all different sorts of different ways that interest can be calculated and the formula reflects all those different things okay? So what we have is a is equal to p 1+r over n to the nt. Okay and what I have written down here is what each of those variables stands for.

Okay a is just going to be your ending amount okay? p is stands for principal another way of saying starting amount so if you invest $2,000, p would be 2,000 okay? Rate is going to be your percent interest so say you get 4% you'll always need to put in as a decimal so that 4% becomes 0.04 okay, n is the number of times per year interest is calculated okay so if it's daily you put in 365, weekly 52 weeks an year put in 52, monthly 12 quarterly means 4 times a year so 4 so on and so forth okay so n is just the number of times an interest is calculated and lastly t is the time of investment in years.

Okay so sort of we're looking formula lot of variables going on but overall just 5 things we have to consider interest, amount you put in the amount that comes out rate [IB] number of times this is calculated and the length of time of your investment.