calculateCompoundInterest()

Step 1: Understand the Compound Interest Formula

The first step in writing this function is to understand the formula for compound interest. The formula for compound interest is: A = P(1 + r/n)^(nt) where:

• A is the amount of money accumulated after n years, including interest.
• P is the principal amount (the initial amount of money).
• r is the annual interest rate (in decimal).
• n is the number of times that interest is compounded per unit t.
• t is the time the money is invested for in years.

// This is just a placeholder to illustrate the placeholders in the formula. Implementation will be done in further steps.

public double calculateCompoundInterest(double P, double r, double n, double t) {
    double A;
    // A = P(1 + r/n)^(nt) - implementation will be done later
    return A;
}

Step 2: Implement the Interest Rate Conversion

The interest rate is usually given in percentage, but in the formula, we need it in decimal. We will divide the interest rate by 100 to convert it to decimal.

public double calculateCompoundInterest(double P, double r, double n, double t) {
    r = r / 100; // converting interest rate into decimal
    double A;
    // A = P(1 + r/n)^(nt) - implementation will be done later
    return A;
}

Step 3: Implement the Compound Interest Formula

Now we have all the pieces to implement the compound interest formula. We will use the Math.pow() function to calculate the power.

public double calculateCompoundInterest(double P, double r, double n, double t) {
    r = r / 100; // converting interest rate into decimal
    double A = P * Math.pow(1 + r/n, n*t);
    return A;
}

Step 4: Test the Function

After writing the function, it's important to test it with different inputs to make sure it's calculating compound interest correctly.

public static void main(String[] args) {
    System.out.println(calculateCompoundInterest(5000, 5, 12, 10)); // it should return 8235.05
    System.out.println(calculateCompoundInterest(10000, 5, 12, 5)); // it should return 12833.59
}

Conclusion

Now we have a function that can calculate compound interest in Java. It takes four parameters: the principal amount, the annual interest rate, the number of times interest is compounded per year, and the number of years the money is invested for.