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# 3.5 Compound Interest Formula PowerPoint PPT Presentation

3.5 Compound Interest Formula. Imagine you deposit \$10,000 in a five-year cd . The account pays 5.2% interested compounded daily. How much will your \$10,000 investment be worth by the end of the 5 years?. Compound Interest Formula. B = ending balance. p = principal. r = interest rate.

3.5 Compound Interest Formula

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## 3.5 Compound Interest Formula

• Imagine you deposit \$10,000 in a five-year cd. The account pays 5.2% interested compounded daily. How much will your \$10,000 investment be worth by the end of the 5 years?

### Compound Interest Formula

B = ending balance

p = principal

r = interest rate

n = number of compounds per year

t = time (in years)

### Number of Compounds

• Annually

• n = 1

• Semiannually

• n = 2

• Quarterly

• n = 4

• Daily

• n = 365 (or 366 in a leap year)

• Marie deposits \$1,650 for three years at 3% interest, compounded daily. What is her ending balance?

p = \$1,650

r = 0.03

n = 365

t = 3

Kate deposits \$2,350 in an account that earns interest at a rate of 3.1%, compounded monthly. What is her ending balance after 5 years?

p = \$2,350

r = 0.031

n = 12

t = 5

## 3.5 Compound Interest Formula

### APR vs. APY

• APR

• Annual interest rate

• APY

• Actual rate you earn with compounding interest

• To find APY:

Sharon deposits \$8,000 in a one year CD at 3.2% interest, compounded daily. What is Sharon’s APY?

Barbara deposits \$3,000 in a one year CD at 4.1% interest, compounded daily. What is her APY for the account?