daily compounding pp. 214-216 5-7 section. click to edit master text styles second level third level...
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Daily Compounding pp. 214-2165-7SECTIONSECTION
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 2 of 21
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daily compounding (p. 214)
Interest on an account that is computed each day and added to the account balance.
Key Words to KnowKey Words to Know
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 3 of 21
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Amount = Original Principal × Amount of $1.00
Formula 1Formula 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 4 of 21
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Compound Interest = Amount – Original Principal
Formula 2Formula 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 5 of 21
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You deposit $8,000 in an account that pays 5.5 percent interest compounded daily.
How much interest will you earn in 31 days?
Example 1Example 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 6 of 21
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Find the amount of $1.00 for 31 days using the following table.
Example 1 Answer: Example 1 Answer: Step 1Step 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 7 of 21
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Figure 5.6Figure 5.6
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 8 of 21
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Find the amount.
Original Principal × Amount of $1.00
$8,000.00 × 1.00468 = $8,037.44
Example 1 Answer: Example 1 Answer: Step 2Step 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 9 of 21
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Find the compound interest.
Amount – Original Principal = Compound Interest
$8.037.44 – $8,000.00 = $37.44
Example 1 Answer: Example 1 Answer: Step 3Step 3
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 10 of 21
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On May 31, Deloris Zelms deposited $1,000 in a saving account that pays 5.5 percent interest compounded daily.
On July 1 how much interest had been earned on the principal in her account?
Example 2Example 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 11 of 21
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Find the number of days from May 31 to July 1. Use the Elapsed Time Table on page 796 of your textbook.
July 1 is day 182. May 31 is day 151.
182 – 151 = 31 days
Example 2 Answer: Example 2 Answer: Step 1Step 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 12 of 21
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Find the amount of $1.00 for 31 days using the Compound Interest—Amount of $1.00 table on page 796 of your textbook.
It is 1.00468.
Example 2 Answer: Example 2 Answer: Step 2Step 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 13 of 21
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Find the amount.
Original Principal × Amount of $1.00
$1,000.00 × 1.00468 = $1,004.68
Example 2 Answer: Example 2 Answer: Step 3Step 3
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 14 of 21
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Find the compound interest.
Amount – Original Principal
$1,004.48 – $1,000.00 = $4.68
Example 2 Answer: Example 2 Answer: Step 4Step 4
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 15 of 21
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On April 20, Veronica Osborne deposited $1,600 in a savings account. The account pays 5.5 percent interest compounded daily.
How much interest will the money earn by May 26?
Practice 1Practice 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 16 of 21
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$8.69
Practice 1 AnswerPractice 1 Answer
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 17 of 21
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Isabella Achacoso has a balance of $20,000 in her savings account on July 3. That same day, she deposits $2,000 in her account. She deposits another $1,000 on July 19.
What amount will she have in her account on July 31 if it pays 5.5 percent interest compounded daily? How much is compound interest?
Practice 2Practice 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-7, Slide 18 of 21
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Amount in account on July 31: $23,094.52
Compound interest: $94.52
Practice 2 AnswerPractice 2 Answer
215-216: #3-13215-216: #3-13