07-02-2003, 11:28 PM
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aspiring banker
Join Date: Mar 2002
Location: toronto
Posts: 10,870
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Quote:
Originally posted by WiredGuy
The formula you would use is:
A = P(1 + r/100)^t
Where A = Amount, P = Principle, R = Interest Rate per annum and t = time in years. But you mentioned you're adding money every month, so the above will give you per annum so the interest will be off by a bit but should be close enough to compute the difference.
The actual formula you would use would depend when interest is computed, so say interest is paid out N times per year then you adjust the formula to this:
A = P[1 + r/(N * 100)]^(Nt)
Where N = number of times per annum interest is paid.
I'll stick to the easy case...
So, Contract A: $2250 * 12 = $27,000 per year
So, Contract B: $2750 * 12 = $33,000 per year
Contract A = $27000*(1.08) ^ 40 = $586,562.08
Contract B = $33000*(1.08) ^ 18 = $131,868.64
Contract A would win.
But remember the numbers are not exact since you can't do $2250 * 12 really since it depends when interest is computed. If interest is computed continiously, that gets even uglier...
Hope this helps Bobble Head 
WG
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lets take A and assume annual compounding.
n=40
i=8
pmt=27000
so pv=321,964.56
monthly compounding would be 323,595.88 |
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