00:01
So whenever i hear compounded a finite amount of times, like semi -annually, quarterly, or monthly, i'm going to think about this formula.
00:07
A of t, my future amount is going to equal my present amount times one plus my interest rate and is the number of time compounded per year over a time period.
00:15
So let's just make them all consistent.
00:17
Let's say it's after one time period and my present value is $1 ,000.
00:22
It ultimately doesn't matter what these are.
00:24
I want this to be over the same time period.
00:28
The only thing that's changing is my interest rate and compounding quarterly annually or so on and so forth.
00:34
So let's say i want to compound semi -annually, how many times that a year, twice a year, and my interest rate is 3 .95%.
00:43
So what i could do is i could just plug this all to the formula.
00:49
I could say, okay.
00:51
So after one year, i'm going to get 1 ,001 plus my interest rate divided by 100 .0 .0 .3.
01:01
395 divided by 2 to the 2 times 1.
01:04
If i were to plug this in my calculator, what amount would i get at the end of one year, raised the 2 times 1 ,000? i'm going to get 1 ,039 .890 or 89 cents.
01:18
Okay, so that's one of my options.
01:20
What of my other option is, okay, compounding quarterly four times a year, and my interest rate is a little lower, 3 .92%...