A+ » VCE » Further Maths U3 & 4 Master Notes » A2 Recursion and Financial Modelling » 2.4 Predicting Future Values for Compound Interest Loans and Investments

2.4 Predicting Future Values for Compound Interest Loans and Investments

Predicting Future Values involving Compound Interest

  • Predicting the value of a compound interest system after a large number of compounding periods is a long and tedious process using recursion. Fortunately, for systems which do not involve regular additions or withdrawals, we can use the convenient formula:

A_{n}=\left(1+\frac{r}{100}\right)^{n} A_{0}

Where A_{n} is the amount after n compounding periods, r is the interest as a percentage and A_{0} is the initial value.

  • When dealing with systems which do have regular additions or withdrawals, the only method we have (in the scope of this course) is recursion.
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