# Compounding Period Issue

"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 :) • What, in your opinion, is the “normal” compounding formula, and why don't you think it works? – Matthew Leingang Oct 25 '16 at 9:55 ## 1 Answer 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. • 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? – Gerry Myerson Oct 25 '16 at 12:11
• i applied the wrong numbers :P sorry :(, i'll remove that – John Hon Oct 25 '16 at 12:13