Compound interest is a situation that occurs when interest is added to a balance and then at a later date, interest is added to the original deposit plus the interest that was already calculated. The formula for compound interest is A = P*(1 + (r/n))^(n*t) where A is the total amount after the interest is compounded, P is the principal amount, r is the annual interest rate as a decimal, t is the number of years and n is the number of times interest is compounded per year. Using parentheses when entering the formula into a calculator is important because the formula needs to be evaluated in a specific order.
Instructions
1. Enter the principal amount into the graphing calculator. For example, if $1,000 was initially deposited, enter “1000.”
2. Enter (1 + (r/n)) into the graphing calculator. For example, if the annual interest rate is 2 percent and interest is compounded quarterly, enter (1 + (0.02/4)). 2 percent is the same as 0.02 and interest that is compounded quarterly means that is is compounded four times per year.
3. Press the “^” key for exponentiation.
4. Enter “(n*t)” into the graphing calculator. For example, if interest is compounded quarterly and the money will be in the account for five years, enter “(4*5).”
5. Press the “Enter” or “=” key on the graphing calculator. In the example, the balance of the account would be approximately $1,104.90 after five years.
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