Photo Credit:**purpleslog**

In today post,I'm going to talk about some concepts related to everyday life, we call this everyday Math. As you see the image on the side, you know I'm going to talk about money and where is money being 'stored'? Well, safely in the bank! So have you wondered why banks give you interest (peanuts though) for doing you a service of keeping your money safely? Should they charge you?

Today we are going to discuss about interest, **compound interest** in particular. I would strongly suggest you read these 2 posts before attempting the question first.

These 2 posts discuss the basic concepts on the differences between Simple and Compound Interest as well as what you should note when using the formulas.

I came across the following question while doing an exampaper analysis for my student recently and it so coincides with the topics I want to discuss this week.

## Example:

**Do the question yourself and check your level of understanding. It should take you 2 minutes.**

## Spot the error!

Common mistake (click here for image). Did you make this mistake too? Do you know where the error is?

**Lesson Learnt**

The correct working is shown here. (click)

**Test out your understanding**

If the original question is modified to **compounded half-yearly** with the principle amount of $75 000 being deposited at the same rate of 1.8% per annum, calculate the total amount at the end of **1 year**. What would be your answer? Leave your answer in the comment section.

hi, thank you for the tips. i can relate both easily now. thx again

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The Compound Interest question. There may be two answers. You may decide to apportion time n =3/4 because its 9months.

Or say that the compound interest is only paid at the end of the year so it is zero because we have not reached a year.

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Greetings, I am corrected , it is compounded per month.

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Hi! thank you a lot for the tips you are sending me.I have learned many things from you.please send me more on other topics.thanking you in anticipation.

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My answer is: $76356.08

Am I right?

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alwaysLovely Reply:

February 3rd, 2010 at 10:22 am

Well done, Sid!

That's the correct answer.

r=0.9

n=2

Subst. into compound interest formula to get total amount.

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i got 76012.50 instead.

i dont get it.

75000 x 1.8/100% = $1350 (which is 12months)

$1350/12 x 9 = $1012.50

hence, $1012.50 + $75000 = $76012.50

:O

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