Page 67 - CalcBus_Flipbook

CH 8] Calculating Business 8-5

Now let’s deal with the exponent 3. In PEMDAS, this is the E, the Exponents in the Order of
Order of Operations listed second in the process that must be satisfied. Operations:
PEMDAS
3
Remember that the parenthetical value is actually (1 + 0.08) . The 3 as the exponent
means that the arithmetic for the numbers inside the parenthesis are to be multiplied by 1. Parentheses.
itself 3 times, expressed as: 2. Exponents and
Roots √
1.08 x 1.08 x 1.08
3. Multiplication and
and when this is accomplished the new value is (1.08 x 1.08 x 1.08 =) 1.259712. Do not Division (from left
round this value at this time as it is a part of the greater equation. So, to right)
4. Addition and
3
(1 + 0.08) x 1/year x $1,500 = S for 3 years Subtraction (from
becomes: left to right)
1.259712 x 1/year x $1,500 = S for 3 years

As the algorithm for the equation is now at Multiplication, in PEMDAS, the third
process. Performing the arithmetic indicated, multiplication, the resulting solution becomes
( 1.259712 x 1 x 1,500 =) 1,889.568 on your calculator. As this is a dollar amount, it is now
time to round the answer, two places to the right of the decimal, adding the $ sign, and the
answer becomes $1,889.57.

Using your calculator follow these key strokes to arrive at the answer for the Sum of
Principal and Interest when calculating Compound Interest. The equation is:
n
S = (1 + i) x Time x Principal
given the following:
P = $1,500
i = 0.08
n = 3 to calculate the amount of fund at the end of period of time.
T = 1

3
(1 + 0.08) x 1 x $1,500 = S
Calculator key strokes:

Rounded to $
CL 1.08 X = = X 1 X 1500 = 1899.568 $1,899.57

3
(1.08) 1 2 3 ≈ (1.08 x 1.08 x 1.08)
1 2 3

Recognize in this example that the number of interest periods (n) is small being 3 years,
and the constant 1 + i may be used as a constant multiplier times the principal (P)

Calculating the total interest paid, or earned, in this problem is a matter of subtracting
the principal ($1,500) from the compounded total ($1,889.57).

Solution: Use the following equation to calculate the total
(compounded) interest in your answer:

C I = Compound interest
C I = S — P S = Compound amount 8
P = Principal

C I = S — P
C I = $1,889.57 — $1,500.00 = $389.57

Calculating the compound interest that may be applied weekly, monthly, every 2 months
(60 days), quarterly (90 days) semiannually (every 6 months or 180 days) or annually. The
times listed are the interest periods. When paying on production loans, farmers and
ranchers may have the interest periods coincide with crop harvests and rolled over into

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