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3.5 Compound Interest FormulaPowerPoint Presentation

3.5 Compound Interest Formula

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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?

B = ending balance

p = principal

r = interest rate

n = number of compounds per year

t = time (in years)

- Annually
- n = 1

- n = 2

- n = 4

- 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
- 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?