Compound Interest: Calculating John's Remaining Balance

What is the formula for compound interest?

What are the variables involved in the compound interest formula?

How does John's regular monthly payments affect his remaining balance after 18 months?

Answer:

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the future value of the investment/loan, P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the time the money is invested for.

John's regular monthly payments of $102 reduce his remaining balance after 18 months, as they are deducted from the accrued amount of interest.

Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods of a deposit or loan. It is an essential concept in finance and investing, as it allows individuals to understand how their money grows over time when interest is applied to it.

The formula for compound interest helps in calculating the future value of an investment or loan after a certain period of time. In the formula A = P(1 + r/n)^(nt), A represents the future value, P is the principal amount, r is the annual interest rate (in decimal form), n is the number of times the interest is compounded per year, and t is the time the money is invested for in years.

When making regular monthly payments towards a loan or investment, such as in John's case with $102 a month, these payments reduce the remaining balance of the loan after each payment is made. These payments are deducted from the amount accrued through compound interest, helping to decrease the overall balance due.

Understanding compound interest and how regular payments impact the remaining balance is crucial for individuals managing loans, investments, or any financial commitment. By grasping these concepts, individuals can make informed decisions and track their financial progress accurately over time.