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4 November, 09:41

Invested, r is the interest rate as a decimal, n is the number of times compounded annually, and t is the number of years. A person is investing $1000 at an interest rate of 12% interest for 25 years, and is curious how much difference the number of compounds (n) increases the value of the account after 25 years.

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  1. 4 November, 10:06
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    Step-by-step explanation:

    We would apply the formula for determining compound interest which is expressed as

    A = P (1+r/n) ^nt

    Where

    A = total amount in the account at the end of t years

    r represents the interest rate.

    n represents the periodic interval at which it was compounded.

    P represents the principal or initial amount deposited

    From the information given,

    P = $1000

    r = 12% = 12/100 = 0.12

    n = 1 because it was compounded once in a year.

    t = 25 years

    Therefore,.

    A = 1000 (1 + 0.12/1) ^1 * 25

    A = 1000 (1.12) ^25

    A = $17000

    If the number of compounding periods increases, the amount of compound interest would be greater.
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