Download Presentation
Compound Interest

Loading in 2 Seconds...

1 / 7

# Compound Interest - PowerPoint PPT Presentation

Compound Interest. Lesson 3.5. Agree or Disagree ?. A bank account that pays 12% per year yields the same results as a bank account that pays 1% every month and compounds interest. Nominal vs. Effective Rate. Nominal rate The stated yearly rate "12% compounded monthly" Effective rate

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

## PowerPoint Slideshow about 'Compound Interest' - gretchen

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

### Compound Interest

Lesson 3.5

Agree or Disagree ?
• A bank account that pays 12% per year yields the same results as a bank account that pays 1% every month and compounds interest.
Nominal vs. Effective Rate
• Nominal rate
• The stated yearly rate
• "12% compounded monthly"
• Effective rate
• The result of the compounding
• 12% compounded monthly actually gives a 12.683% return on your investment
Compound Interest Formula
• Actually we saw this in the previous lesson
• Here
• r = the nominal rate
• Then is the decimal for the effective rate
Periodic vs. Continuous
• Note the similarities between periodic compoundingand continuous compounding
Periodic vs. Continuous
• The k in the continuous model will always be similaror close to the r value in the periodic compounding model
• Generally r must be slightly larger because there are "less" compounding periods per year
• Example
• Convert B = P e .05t to periodic
• Convert 7.25% compounded monthly to continuous form
Assignment
• Lesson 3.5
• Page 139
• 1 – 21 odd