We ll know that if we are thinking of investment then the best, safe and secure platform comes first in my mind is a fixed deposit. FD is like a savings account but is a bit different from a savings account in terms of the interest rate. A fixed deposit usually offers a higher interest rate than a savings account, also very safe. Some of the people are not aware of how to calculate the fixed deposit interest rate. Let's calculate it with the help of formula.
A = maturity value
P = principal amount or deposit amount
n = compound interest frequency
r = rate of interest
t = tenure / time period
Now, the formula is,
A = P*(1+r/n)^nt
or
A = P x (1+r/n)nt
The formula may seem a little hard, but it is not as hard as we think. It is as simple as a simple interest formula. It’s time to calculate.
(Principal / Deposit Amount)
r = 7% = 7/100 = 0.07
(rate of interest – let us take it as 7% for most of the banks’ rate of interest is around 7%)
t = 3
(tenure / time period – 3 years)
n = 4
(compound interest – quarterly – 4 times per annum)
Now,
A = P*(1+r/n)^nt
A = 25000*(1+0.07/4)^(4*3)
A = 25000*(1+0.0175)^12
A = 25000*(1.0175)^12
A = 25000*1.23143931494
A = 30785.98
In order to find the interest amount, lets reduce the deposit amount from maturity value.
I = 30785.98 – 25000
I = 5785.98
So, the conclusion is that if the person deposits Rs 25000 with the lender on an interest rate of 7%. Then after 3 years of the interest rate he/she will get 5785.98.
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