2-4 You will need: EXPLORE COMPOUND Student Notes INTEREST

[Pages:25]2-4 EXPLORE

You will need:

COMPOUND INTEREST ? Papers on the student

table

To do now: 1. Write down the objective 2. Take out earbuds

? Textbook ? Calculator ? Pen or Pencil ? Formula Cheat Sheet

? Notebook Paper

OBJECTIVES

Red Items are needed during the lecture

Explain the concept of getting interest on your interest. Compute compound interest using a formula and a table.

Slide 1

Time Periods (It is on your formula chart!)

Time period

Annually

1 year

Semiannually 6 months

Quarterly

3 months

Monthly 1 month

Weekly

7 days

Daily

1 day

Slide 2

Interest Income

? Simple Interest ? Only your principal (starting amount) earns interest

How can you earn more money? ? Compounded Interest ? Your principal earns interest

AND any interest you have already received also earns interest.

How do I figure out how much?

Example 1 ? Compounding Manually What would be the new balance of a $1,000 account in one year that earns a rate of 2%, compounded annually?

BECAUSE I HAVE NOT TAUGHT THE COMPOUND FORMULA YET ? WE WILL USE THE SIMPLE INTEREST FORMULA UNTIL NEXT LESSON!

Which formula on the formula cheat sheet? 1b Q1) One or multiple? One: Top Q2) Which key word? Simple: 1 Q3) What are you looking for? Ending Balance: b

Example 1 ? Compounding Manually

What would be the new balance of a $1,000 account in one year that earns a simple interest rate of 2%, compounded annually?

Variables:

B= B p = 1,000 r = .02 t= 1

Formula:

B = P + PRT = 1000 + 1,000 x .02 x 1 = $1,020.00

Slide 5

Example 2 ? Compounding Manually Maria deposits $1,000 in a savings account that pays 2% interest, compounded semiannually. What is her balance after 6 months?

Which formula on the formula cheat sheet? 1b Q1) One or multiple? One: Top Q2) Which key word? Simple: 1 Q3) What are you looking for? Ending Balance: b

Slide 6

Example 2 ? Compounding Manually

Maria deposits $1,000 in a savings account that pays 2% interest, compounded semiannually. What is her balance after 6 months?

Variables:

B= B

p = 1,000

r = .02

t =

6 12

Formula:

B = P + PRT

6

= 1,000 + 1,000 x .02 x 12

= $1,010.00

Example 2 ? Now You Try It!

Alex deposits $4,000 in a savings account that pays 5% interest, compounded semiannually. What is his balance after one six months?

Slide 8

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