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Chapter 4: Managing Your MoneyAssignment #2: Unit 4BThe Power of CompoundingPages 228 - 241What is the difference between simple interest and compound interest? Why do you end up with more money with compound interest?Explain how New College could claim that a debt of $224 from 535 years ago is worth $290 billion today? How does this show the “power of compounding”?Explain why the term APR/n appears in the compound interest formula for interest paid n times a year.State the compound interest formula for interest paid once a year. Define APR and Y.State the compound interest formula for interest paid more than once a year.What is the annual percentage yield(APY)? Explain why, for a given APR, the APY is higher if the interest is compounded more frequently.What is continuous compounding? How does the APY for continuous compounding compare to the APY for, say, daily compounding? Explain the use of the formula for continuous compounding.Give an example of a situation in which you might want to solve the compound interest formula to find the principal P that must be invested now to yield a particular amount A in the future.Exercises: Pages 243 – 244 Problems 19 - 78 ................
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