- 1). Determine the interest rate per compounding period, the number of periods compounding and the annual contribution. In our example, 6 percent divided by 12 equals 0.005 interest per month. Multiply 8 times 12 which equals 96 times compounding. The annual contribution is $100.
- 2). Add 1 to the interest rate then raise the sum to the power of the number of times compounding. In our example, 1 plus 0.005 equals 1.005; then 1.005 raised to the power of 96 equals 1.614142708.
- 3). Subtract 1 from the number calculated in Step 2. In our example, 1.614142708 minus 1 equals 0.614142708.
- 4). Divide the number calculated in Step 3 by the interest rate per compounding period. In our example, 0.614142708 divided by 0.005 equals 122.8285417.
- 5). Multiply the number calculated in Step 4 by the annual contribution. In our example, 122.8285417 times $100 equals $12,282.86.
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