aa section 7-4
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Section 7-4Compound Interest
Warm-upEvaluate to the nearest hundredth.
1. 5000 1.07( )4
2. 2500 1.0625( )3
3. 3000 1+ .06
4( )4(5)
4. 10000 1+ .085
12( )12(3)
Warm-upEvaluate to the nearest hundredth.
1. 5000 1.07( )4
2. 2500 1.0625( )3
3. 3000 1+ .06
4( )4(5)
4. 10000 1+ .085
12( )12(3)
6553.98
Warm-upEvaluate to the nearest hundredth.
1. 5000 1.07( )4
2. 2500 1.0625( )3
3. 3000 1+ .06
4( )4(5)
4. 10000 1+ .085
12( )12(3)
6553.98 2998.66
Warm-upEvaluate to the nearest hundredth.
1. 5000 1.07( )4
2. 2500 1.0625( )3
3. 3000 1+ .06
4( )4(5)
4. 10000 1+ .085
12( )12(3)
6553.98 2998.66
4040.57
Warm-upEvaluate to the nearest hundredth.
1. 5000 1.07( )4
2. 2500 1.0625( )3
3. 3000 1+ .06
4( )4(5)
4. 10000 1+ .085
12( )12(3)
6553.98 2998.66
4040.57 12893.02
Compounding:
Compounding: Earning interest on interest
Compounding: Earning interest on interest
Principal:
Compounding: Earning interest on interest
Principal: The original/starting amount
Compounding: Earning interest on interest
Principal: The original/starting amount
Annual Compound Interest Formula:
Compounding: Earning interest on interest
Principal: The original/starting amount
Annual Compound Interest Formula: A = P(1+ r)t
Compounding: Earning interest on interest
Principal: The original/starting amount
Annual Compound Interest Formula: A = P(1+ r)t
A = final amount, P = principal, r = interest rate,t = time in years
Example 1Fuzzy Jeff invested $4000 in an account with an annual
yield of 6.2% for 4 years. How much interest does he earn?
Example 1Fuzzy Jeff invested $4000 in an account with an annual
yield of 6.2% for 4 years. How much interest does he earn?
A = P(1+ r)t
Example 1Fuzzy Jeff invested $4000 in an account with an annual
yield of 6.2% for 4 years. How much interest does he earn?
A = P(1+ r)t
A = 4000(1+ .062)4
Example 1Fuzzy Jeff invested $4000 in an account with an annual
yield of 6.2% for 4 years. How much interest does he earn?
A = P(1+ r)t
A = 4000(1+ .062)4
A ≈ 5088.13
Example 1Fuzzy Jeff invested $4000 in an account with an annual
yield of 6.2% for 4 years. How much interest does he earn?
A = P(1+ r)t
A = 4000(1+ .062)4
A ≈ 5088.13
5088.13 − 4000
Example 1Fuzzy Jeff invested $4000 in an account with an annual
yield of 6.2% for 4 years. How much interest does he earn?
A = P(1+ r)t
A = 4000(1+ .062)4
A ≈ 5088.13
5088.13 − 4000 = 1088.13
Example 1Fuzzy Jeff invested $4000 in an account with an annual
yield of 6.2% for 4 years. How much interest does he earn?
A = P(1+ r)t
A = 4000(1+ .062)4
A ≈ 5088.13
5088.13 − 4000 = 1088.13
Jeff earns $1088.13 in interest.
Common Ways to Compound
Annually:
Common Ways to Compound
Annually: Once per year
Common Ways to Compound
Annually: Once per year
Semi-annually:
Common Ways to Compound
Annually: Once per year
Semi-annually: Twice per year
Common Ways to Compound
Annually: Once per year
Semi-annually: Twice per year
Quarterly:
Common Ways to Compound
Annually: Once per year
Semi-annually: Twice per year
Quarterly: Four times per year
Common Ways to Compound
Annually: Once per year
Semi-annually: Twice per year
Quarterly: Four times per year
Monthly:
Common Ways to Compound
Annually: Once per year
Semi-annually: Twice per year
Quarterly: Four times per year
Monthly: Twelve times per year
General Compound Interest Formula
General Compound Interest Formula
A = P 1+ r
n( )nt
General Compound Interest Formula
A = P 1+ r
n( )nt
A = final amount, P = principal, r = interest rate, t = time in years,
n = number of times compounded in a year
Example 2Maggie Brann invests $3500 at an annual yield of 5.3%, compounded quarterly for 5 years. How much money
will she have if she leaves it all in the bank?
Example 2Maggie Brann invests $3500 at an annual yield of 5.3%, compounded quarterly for 5 years. How much money
will she have if she leaves it all in the bank?
A = P 1+ r
n( )nt
Example 2Maggie Brann invests $3500 at an annual yield of 5.3%, compounded quarterly for 5 years. How much money
will she have if she leaves it all in the bank?
A = P 1+ r
n( )nt
A = 3500 1+ .053
4( )4(5)
Example 2Maggie Brann invests $3500 at an annual yield of 5.3%, compounded quarterly for 5 years. How much money
will she have if she leaves it all in the bank?
A = P 1+ r
n( )nt
A = 3500 1+ .053
4( )4(5)
A = 4554.08
Example 2Maggie Brann invests $3500 at an annual yield of 5.3%, compounded quarterly for 5 years. How much money
will she have if she leaves it all in the bank?
A = P 1+ r
n( )nt
A = 3500 1+ .053
4( )4(5)
A = 4554.08Maggie will have $4554.08.
Homework
Homework
p. 441 #1-25, skip 18
“I’m not going to die because I failed as someone else. I’m going to succeed as myself.” - Margaret Cho
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