Compound InterestCompound Interest

SWBAT compute compound SWBAT compute compound interest using a table interest using a table

DefinitionsDefinitions

Compound interest Compound interest The interest paid on the principal and on the The interest paid on the principal and on the

interest accumulated to date interest accumulated to date

Balance Balance The sum of the principal plus the interest The sum of the principal plus the interest

earnedearned

ThinkThink

Mrs. Farrell deposits $12,000 in a savings Mrs. Farrell deposits $12,000 in a savings account for Emily. The bank pays interest account for Emily. The bank pays interest quarterly at an annual interest rate of 6%. quarterly at an annual interest rate of 6%. How much money will she have in the How much money will she have in the bank at the end of 1 year?bank at the end of 1 year?

Find the BalanceFind the Balance

Turn to page 200 in your textbooksTurn to page 200 in your textbooks Find the interest rate per periodFind the interest rate per period

Divide the annual rate by the number of periodsDivide the annual rate by the number of periods

Quarterly = 4 times a yearQuarterly = 4 times a year

Semi-annually = 2 times a yearSemi-annually = 2 times a year

Annually = 1 time a yearAnnually = 1 time a year Find the percentage you calculated on the chartFind the percentage you calculated on the chart Multiply the deposit by the factor givenMultiply the deposit by the factor given Subtract the principal from the balance to find the Subtract the principal from the balance to find the

interest that was earnedinterest that was earned

Calculating Interest PeriodsCalculating Interest Periods

Compounded annually for 8 yearsCompounded annually for 8 years

Compounded semi-annually for 4.5 yearsCompounded semi-annually for 4.5 years

Compounded quarterly for 6 yearsCompounded quarterly for 6 years

Compounded semi-annually for 6 monthsCompounded semi-annually for 6 months

ExamplesExamples

$7000 at an annual rate of 8%, $7000 at an annual rate of 8%, compounded quarterly for 1 yearcompounded quarterly for 1 year

$10,000 at an annual rate of 7%, $10,000 at an annual rate of 7%, compounded semi-annually, for 2 yearscompounded semi-annually, for 2 years

Josie deposits $5000 in an account. The Josie deposits $5000 in an account. The annual interest rate is 8%, compounded annual interest rate is 8%, compounded semi-annually. How much interest will she semi-annually. How much interest will she earn in 1 year?earn in 1 year?

ExamplesExamples

Caitlin deposits $4000 in her savings Caitlin deposits $4000 in her savings account. The annual interest rate is 12%, account. The annual interest rate is 12%, compounded quarterly. How much compounded quarterly. How much interest will she earn in 2 years?interest will she earn in 2 years?

Try This Try This

Save-here Bank pays 5% annual interest Save-here Bank pays 5% annual interest compounded semi-annually. Earn-lots Bank compounded semi-annually. Earn-lots Bank pays 5% annual interest compounded quarterly. pays 5% annual interest compounded quarterly. Samuel wants to invest $2000 for 18 months. Samuel wants to invest $2000 for 18 months. Which bank pays more interest? How much Which bank pays more interest? How much more?more? Save-here: 2.5% per periodSave-here: 2.5% per period Earn-lots: 1.25% per periodEarn-lots: 1.25% per period Save: 3 periods Earn: 6 periodsSave: 3 periods Earn: 6 periods Save: 1.0769 Save: 1.0769 · 2000 Earn: 1.0774 · 2000· 2000 Earn: 1.0774 · 2000 Save: $153.80Save: $153.80 Earn: $154.80Earn: $154.80 Earn –lots will pay $1 more in interestEarn –lots will pay $1 more in interest