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5.6 Compound Interest Table

5.6 Compound Interest Table. Formulas. Total Interest Periods = Periods per Year × Number of Years Interest Rate = Annual Rate ÷ # of periods per year Amount = Original Principal × Amount of $1.00 Compound Interest = Amount – Original Principal # of Periods per year: Quarterly = 4

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5.6 Compound Interest Table

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  1. 5.6 Compound Interest Table

  2. Formulas • Total Interest Periods = Periods per Year × Number of Years • Interest Rate = Annual Rate ÷ # of periods per year • Amount = Original Principal ×Amount of $1.00 • Compound Interest = Amount – Original Principal • # of Periods per year: • Quarterly = 4 • Semiannually = 2 • Monthly = 12 • Weekly = 52

  3. Example 1 • $1000 is invested at 4 percent interest compounded semiannually for 2 years. What is the amount in the account after 2 years?

  4. Solution to Example 1 • Step One: Find the Total Interest Periods • 2 x 2 = 4 periods • (semiannual = 2, # of years = 2) • Step Two: Find the Interest Rate • 4% ÷ 2 = 2%(divided by 2 for semiannual) • Step Three: Find the amount of $1.00 on p. 797 • = 1.0404

  5. Sample of Table on p. 797

  6. Solution to Example 1 Cont’d • Step Four • Amount = Principal x Amount per $1.00 • Amount = $1000 x 1.0404 • Amount = $1040.40

  7. Example 2 Jack opens an account and deposits $4,379.47. The account pays 6 % annual interest and compounds quarterly. 6 months later he deposits $2,000. How much will he have in the account in 1½ years?

  8. Solution • Step One: Find the Total Interest Periods (before deposit): • 4 quarters x 0.5 years • Total Interest Periods = 2 • Step Two: Find the interest Rate • 6% ÷ 4 = 1.5% • Step Three: Find the amount of $1.00 for 2 periods at 1.5 % on table on p. 797

  9. Solution Continued • Step 3 – Find the amount from table

  10. Solution Continued • Step Four: Find the amount after 6 months • $4,379.47 x 1.03023 = $4,511.86 • Step Five: Redo for the amount after 1.5 years • Total Interest Periods = 4 quarters x 1.5 years • = 6 periods • Find the amount per $1.00 on chart (n=6, 1.5%) • Amount of $1.00 =1.09344 • Principal = $4,511.86 + $2,000 deposit = 6,511.86 • Amount = Original Principal ×Amount of $1.00 • Amount = 6,511.86 x 1.09344 • = $7,120.33

  11. Assignment • P. 212-213 1-11all Fort Knox

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