Fractions, Decimals, Percents, Ratios Part 2 - Compunding Interest

[toniitis]

I was watching the Fractions, Decimals, Percents, Ratios Part 2 video of the 2-month plan and somebody asks a question about 12% interest compounded every 3 months and the formula provided is 100*(1.04), but my understanding is that a 3-month period happens 4 times a year so 12/4=3 and also if I am getting 12% in 12 months then it is one percent per month so 3 months is 3%, so my understanding was 1*(1.03). Can anybody help me with where my thinking is going wrong? Thanks!

[sisi]

we discussed this before, check this post out

@Serena

I’m currently watching the percent-ratio video on week 1 day 2 (part 2). In this video (@47:12), you are doing and explaining a problem on compound interest, which is the following:

“if an initial amount of $1000 has an annual interest rate of 12% and compounded every 3 months, what will be the result after a year ?”

when solving, you had 1000(1.04)^4. you explained that the principal is compounded every 3 months thus the result 1.04, which I understand comes from (1+(0.12)/3). However, I think there’s a mistake there about the number of times the interest is compounded.

This is my reasoning:

every 3 months = quarterly → interest is compounded 4 times in a year thus, the new interest becomes r’= 0.12/4=0.03 thus 1+0.3

therefore the final amount will be A=1000(1.03)^(4*1). with 1 in this case representing the number of years.

Thanks!

[toniitis]

Thanks!

[tripathisiddhant]

I went to the link mentioned. I saw the video, but still it makes no sense to me.
I still think what toniitis posed is an issue, with the logic of previous problems.
Greg asks, “every three months how much of the percentage am I getting?”
The student replies 4 and Greg goes on to write 1000(0.04).
But how can we get 4 percent every three months if the total percentage increase per year is 12% and it compounds every 3 months, i think it should be: 1000(1.03)^4 as @toniitis is mentioning.