Challenge: Calculate Compound Interest
Compound interest is a powerful concept in finance, representing the process where interest is added to the principal, so that from that moment on, the interest that has been added also earns interest. This effect can significantly increase savings or investments over time, making it a key tool for understanding personal finance, loans, and investments. The formula to calculate compound interest is:
A = P * (1 + r/n)^(n*t)
where A is the final amount, P is the principal (initial amount), r is the annual interest rate (as a decimal), n is the number of times the interest is compounded per year, and t is the number of years. Knowing how to compute this in Python allows you to model real-world scenarios, such as projecting the growth of a savings account or investment.
123456789# Simple compound interest calculation using annual compounding only # Formula: A = P * (1 + r) ** t def simple_annual_compound(principal, rate, years): return principal * (1 + rate) ** years # Example usage: final_amount = simple_annual_compound(1000, 0.05, 5) print(final_amount) # Output: 1276.2815625000003
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Write a function that calculates the compound interest for a given principal, annual interest rate, number of times interest is compounded per year, and number of years. The function should return the final amount after interest.
- Multiply the principal by (1 plus the rate divided by times compounded) raised to the power of (times compounded times years).
- Return the calculated amount.
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Can you explain how the formula changes if interest is compounded more frequently than annually?
What are some real-life examples where compound interest is especially important?
Can you show how to calculate compound interest for monthly or daily compounding?
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Compound interest is a powerful concept in finance, representing the process where interest is added to the principal, so that from that moment on, the interest that has been added also earns interest. This effect can significantly increase savings or investments over time, making it a key tool for understanding personal finance, loans, and investments. The formula to calculate compound interest is:
A = P * (1 + r/n)^(n*t)
where A is the final amount, P is the principal (initial amount), r is the annual interest rate (as a decimal), n is the number of times the interest is compounded per year, and t is the number of years. Knowing how to compute this in Python allows you to model real-world scenarios, such as projecting the growth of a savings account or investment.
123456789# Simple compound interest calculation using annual compounding only # Formula: A = P * (1 + r) ** t def simple_annual_compound(principal, rate, years): return principal * (1 + rate) ** years # Example usage: final_amount = simple_annual_compound(1000, 0.05, 5) print(final_amount) # Output: 1276.2815625000003
Swipe to start coding
Write a function that calculates the compound interest for a given principal, annual interest rate, number of times interest is compounded per year, and number of years. The function should return the final amount after interest.
- Multiply the principal by (1 plus the rate divided by times compounded) raised to the power of (times compounded times years).
- Return the calculated amount.
Løsning
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