Expert: Richard J. Raridon - 7/17/2009

Question
Hello:

How does p + prt = p(1 + rt)?

It appears that the "p" has been divide out from p + prt, but that would leave 1 + rt not p(1 + rt).

I thank you for your reply.


Answer
That's not a proper interest formula.  If the principal is P and the annual interest rate is r and the number of years is t, the amount A
is A = P(1+r)^t
For example, if you have $1000 invested at 5% for 10 years, you'd have A = 1000(1+.05)^10 = $1629