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Thread: Interest simplified

  1. #1
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    Interest simplified

    I just need a simple explanation as to how much interest i may accumulate on my Absa business savings account. If i have 50k in my account for 3 months how much interest would i have after the 3 months?

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    Depends on what rate they have given you. lets say for example they have given you 4% then 50 000 x 4 % / 12 x 3 = R500 will be our interest for 3 months. Why do you put money in a money market account, is this a short-term investment or what is the objective?
    ---There is no traffic at the extra mile---

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    Diamond Member adrianh's Avatar
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    The correct formula for compound interest is M = P(1 + i)n

    M is the final amount including principal
    P is the principal
    i is the interest earned per period n

    So M = 50,000(1+(0.04/12))^3 ---- principal x (1+annual rate/number of months) to the power of the number of months

    (This is all based on the assumption that the interest is calculated on a monthly basis and that all interest is left in the account...and no fees or other deductions are made)

    =50,000(1.003333333)^3
    =50,000(1.01003333)
    =50,501.67

    Thus the interest that you will earn is R 50,501.67 - R 50,000.00 = R 501.67
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    Dave A (28-Aug-12)

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