Compound Interest
Compound InterestPersonal Finance – Lesson 3Recall from grade 11: There are two types of interest...1. Simple InterestInvestment with 4% per year interestYearInterestAmount0$7001$28$7282$28$7563$28$7844$28$7125$28$8402. Compound InterestInvestment with 4% interest per year, compounded annually.YearInterestAmount0 $700.00 1$28.00 $728.00 2$29.12 $757.12 3$30.28 $787.40 4$31.50 $818.90 5$32.76 $851.66 Future Value Formula for Compound InterestA=P(1+i)nP is the principalA is the accumulated amount or future amounti is the interest rate per compounding periodn is the number of compounding periodsCompounding Period Meaning Interest Rate, iTerm, n annually semi-annuallyquarterly monthlyLet’s Investigate:12% compounded annually12% semi-compounded annually12% compounded quarterly12% compounded monthlyINTEREST = FUTURE VALUE – PRESENT VALUEExample 1: Determine how much money you will have if $2000 is invested for 3 years, at 6% per year, compounded semi-annually. How much interest will you earn?Example 2: Suppose Lidija invests $400 in an account that pays 9%/a compounded monthly. How much money will she have after 4 years?Present Value Formula for Compound InterestP=A(1+i)-nExample 3: Hamad would like to invest enough money today so that in 10 years he will have $15 000 to use as a down payment towards a condo. If his bank account pays 5%/a compounded quarterly, how much must he deposit today?Example 4: Zak buys a used car. He can pay off the car after 3 years with one payment of $6500. The car dealership will charge him 3%/a interest, compounded monthly. What was the original price of the car? How much interest will Zak pay?Homework: 1. Brtukuan borrowed $4500 to buy a car. The interest rate on the loan was 24%, compounded monthly. She is expected to repay the loan in full after 5 years.a) How much must Brtukuan repay? ($14 764.64)b) How much of the amount that Brtukuan repays will be interest? ($10 264.64)2. Taylor buys a laptop from Best Buy. He is offered a don’t pay a cent deal for 24 months. He is charged 4.5% interest, compounded quarterly and after 24 months he owes $1245. What was the sticker price of the laptop? How much interest will Taylor pay? ($1138.42, $106.58)3. On her 12th birthday, Mrs. Moodie invested $6000 at 9%/a compounded monthly. When Ms. Thangaraj turns 45 she invests $6000 at 9%/a compounded monthly. If both of them leave their investments in the bank until they are 65, how much more money will Mrs. Moodie's investment be worth? ( $695 034.10, $36 054.91, $658 979.19) ................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.