- #1
Juwane
- 87
- 0
Why do we take the "no. of years to compound the interest" as power?
Suppose interest is given at 12% annually, compounded once a year. At the end of the year we will have (A = starting amount):
[tex]A( 1 + 0.12 )[/tex]
But if it is compounded twice a year, then at the end of the year we will have:
[tex]2A \left( 1 + \frac{0.12}{2} \right)[/tex]
Why is the above wrong? Why it should be [tex]A \left( 1 + \frac{0.12}{2} \right)^2[/tex] instead of [tex]2A \left( 1 + \frac{0.12}{2} \right)?[/tex]
Suppose interest is given at 12% annually, compounded once a year. At the end of the year we will have (A = starting amount):
[tex]A( 1 + 0.12 )[/tex]
But if it is compounded twice a year, then at the end of the year we will have:
[tex]2A \left( 1 + \frac{0.12}{2} \right)[/tex]
Why is the above wrong? Why it should be [tex]A \left( 1 + \frac{0.12}{2} \right)^2[/tex] instead of [tex]2A \left( 1 + \frac{0.12}{2} \right)?[/tex]
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