"Find the interest earned when $4500 is invested for 6 years at 4% p.a. compounded monthly"

Sorry if the question seems novice, but i really got stuck on it. After realizing that the normal compounding formula wouldn't work, i got wondering, how is the question solved? After fiddling for a bit, i also realized that simply dividing 4% / 12 months (and then making the n periods * 12) didn't work. (it did woops, see answer below)

I have seen something online about compounding periods but unfortuntely I didn't understand that either (is that to do with my issue?)

Thank you :)

  • $\begingroup$ What, in your opinion, is the “normal” compounding formula, and why don't you think it works? $\endgroup$ – Matthew Leingang Oct 25 '16 at 9:55

Sorry about the slightly confusingly worded question but I seem to have gotten the answer i wanted by searching online. By using the formula

$$ A = P (1+\frac {r}{n} )^{nt}$$

(Where n is the number of periods per year, and t is the number of years, change these accordingly to the needed time periods but usually years is standard)

This is slightly different from the one before :

$$ A = P (1+ r )^{n}$$

The second one is used when it doesn't involve different compound periods.

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  • $\begingroup$ But isn't this dividing 4% by 12 months (that's the $r/n$) and then multiplying the number of periods by 12 (that's the $nt$), which is what you said didn't work? $\endgroup$ – Gerry Myerson Oct 25 '16 at 12:11
  • $\begingroup$ i applied the wrong numbers :P sorry :(, i'll remove that $\endgroup$ – John Hon Oct 25 '16 at 12:13

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