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Chapter 7

Calculations – compound interest

3.1 Introduction

With compound interest the interest on a loan or deposit is calculated
by reference to the principal plus any accrued interest.

3.2 Calculation

V = P (1 + r) n

3.3 Equivalent rates of interest

 Use idea of compounding to get equivalent rates

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 E.g. 4% for 6 months equivalent to (1.04 – 1) = 0.0816 or 8.16% per annum

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