Question

The following formula is a variation of the ”compound interest formula”,
compounded yearly:
I = P (1 + r)t−P
I is the interest you earn/owe
P is the amount of money at the beginning (the principal)
r is the interest rate as a decimal
t is the amount of time (in years)
Please note: The ”t” is in the exponent position. That means it’s raising
(1 + r) to the power of ”t”. You can type this in some online calculators by
holding shift and pressing the ”6” key. That should give you this carrot symbol,
ˆ, which means ”exponent”
Aaron has bought a house using a loan of $180,000, 4% interest. Their
monthly mortgage payment is $1000. The taxes and insurance for the house is
$270 a month. They make their first mortgage payment after 30 days.

Answer 1

The formula substituted into the equation I = P(1 + t)^t - P is 730 = 180,000(1 + 0.08)^0.08 - 180,000

I = P(1 + t)^t - P

where,

• I = interest you earn/owe
• P = amount of money at the beginning (the principal)
• r = interest rate as a decimal
• t = amount of time (in years)

I = $1,000 - $270

= $730

P = $180,000

r = 4%

t = 30 days to years

= 1/12

= 0.08333333333333 years

I = P(1 + t)^t - P

730 = 180,000(1 + 0.08)^0.08 - 180,000

Learn more about compound interest:

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