Chapter 5



Chapter 5: Section 5 COMPOUND INTEREST

1. Review: How often do you get interest when you are doing simple interest?

2. What is compound interest?

3. Example: I put $500 in my savings account to start. I earn 3% interest each month. We want to find the total amount of money in the account after 4 months.

a. After one month, what is the total amount of money in the account?

b. Using your answer from (a) as your new principal, find the amount in the account after 1 more month.

c. Using your answer from (b) as your new principal, find the amount in the account after 1 more month.

d. Using your answer from (c) as your new principal, find the amount in the account after 1 more month.

EASIER WAY(

4. Compound Interest (formula)

5. How many times a year is interest paid if an account has interest compounded:

a. Daily?

b. Weekly?

c. Monthly?

d. Quarterly?

e. Semiannually?

EXAMPLE S:

6. Larry deposits 3,450 into a savings account. The account has 3.5% interest, compounded monthly. He makes no deposits or withdrawals.

a. How much is in the account at the end of 7 months?

b. How much interest did he earn?

7. Jen deposits $12,345.00 into a savings account. The account has 4% interest compounded quarterly. She makes no deposits or withdrawals.

a. How much is in the account at the end of 7 months?

b. How much interest did he earn?

Complete the following:

Page 210, #8-12

More practice:

1) Find the amount in the accounts:

a. $2000 at 4% compounded monthly for 5 years

b. $15,000 at 9% compounded weekly for 20 years

c. $1000 at 8% compounded daily for 5 years

d. $1000 at 8% compounded annually for 5 years

e. Looking at letters (d) and (c), how much more did you earn when you compounded daily versus annually?

2) Rachel has $4,000 principal

a. How much money will be in her account at the end of 5 years if she earns SIMPLE interest at 4%?

b. How much money will be in her account at the end of 5 years if she earns COMPOUND interest at 4%, compounded monthly?

c. Which type of interest (SIMPLE or COMPOUND) is better for Rachel?

d. How much more does Rachel earn with compound interest?

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download