# Compund Interest Questions and Answers

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Please find our compound interest formulas below. To understand compound interest fully please read our blog article on it!

**Annually compounded interest formula: **

**Half-yearly compounded interest formula:**

**Quarterly compounded interest formula:**

**Compounded interest formula with varying interest rates:**

Here, Principal sum = P, Interest = R% per annum, Time = n years

You have an investment proposition in front of you where you would invest 25000 dollars in a project and after 10 years you can sell the investment. You would earn 5% paid annually. How much would you have at the end of year 10?

### Answer & Explanation:

Answer: Option C

Explanation: Use the annual formula above to come to the answer. 1.05^10*25000

In the above investment you are given the option to receive the interest compounded half-yearly as well. How much would you now have after year 10?

### Answer & Explanation:

Answer: Option D

Explanation: Use the half yearly formula above to come to the answer. 5/2=2.5% 1.025^20*25000=40965

What if in the investment above you could receive the interest quarterly? How much interest would you have accumulated after 10 years?

### Answer & Explanation:

Answer: Option A

Explanation: 5/4=1.25% 1.0125^40*25000-25000=16090

The investment provider is going all out! He is offering you monthly compounded interest payments. What would your principal plus interest be at the end of year 10 now?

### Answer & Explanation:

Answer: Option B

Explanation: Use the annual formula above again but as we have monthly interest we divide the annual interest rate by 12 months and we also multiply n=10 years by 12 months so we have 120. So now we have 25000*((1+(5%/12)))^(10*12)=41175.

How much more interest + principal in total percentage wise would you receive when you compare the annual to the monthly compounded?

### Answer & Explanation:

Answer: Option C

Explanation: Monthly was 41175 and annual was 40722 with a difference of 453. 453/40722=1.11% more just by choosing to receive the interest more frequently.

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