Compound Interest Formula: - White Plains Public Schools
Pre-Calculus Mrs. Name__________ Date________
Compound Interest Applications
|If a principal of P dollars is borrowed for a period of t years at a per annum interest rate r, expressed in decimals, the interest|
|I charged is |
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|Simple Interest: I = Prt |
|The amount A after t years due to a principal P invested at an annual interest rate r compounded n times per year is |
|Compound Interest Formula: [pic] |
|The amount A after t years due to a principal P invested at an annual interest rate r compounded continuously is |
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|Continuous Compounding: [pic] |
|The present value P of A dollars to be received after t years, assuming a per annum interest rate r compounded n times per year, is|
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|Present Value Formulas: [pic] |
|If the interest is compounded continuously, then [pic] |
|1) Suppose your bank pays 4% interest per annum. If $500 is deposited, how much will you have after 3 years if interest is |
|compounded |
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|a) Annually |
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|b) Monthly |
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|2) Suppose your bank pays 4% interest per annum. If $500 is deposited, how much will you have after 3 years if interest is |
|compounded continuously? |
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|3) How much money should you deposit today in order to have $20,000 in three years if you can earn 6% compounded monthly from a |
|bank C.D.? |
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|4) Find the amount that results from each investment: |
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|a) $100 invested at 4% compounded quarterly after a period of 2 years. |
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|b) $50 invested at 6% compounded monthly after a period of 3 years. |
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|5) Find the principal needed now to get each amount, that is, find the present value. |
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|a) To earn $100 after 2 years at 6% compounded monthly. |
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|b) To earn $75 after 3 years at 8% compounded quarterly. |
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