7.2 Compound Interest and Exponential Growth

1 / 5

# 7.2 Compound Interest and Exponential Growth - PowerPoint PPT Presentation

7.2 Compound Interest and Exponential Growth . ©2001 by R. Villar All Rights Reserved. Compound Interest and Exponential Growth. A is the balance in the account after t years P is the principal (amount deposited) N is the number of compounding periods per year r is the interest rate.

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

## 7.2 Compound Interest and Exponential Growth

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 and Exponential Growth

Ais the balance in the account after t years

Pis the principal (amount deposited)

Nis the number of compounding periods per year

ris the interest rate

Simple Interest: the amount paid or earned for the use of money for a unit of time.

Compound Interest: Interest paid on the original principal and on interest that becomes part of the account.

Compound Interest Formula:

### Example: You deposit \$10,000 in an account that pays 5% annual interest compounded quarterly. What is the balance after 10 years?

A ≈ \$16,440

This is an example of exponential growth. Let’s look at the graph of this problem which will demonstrate exponential growth...

### Exponential Growth:

16

12

8

4

Balance (1000 dollars)

0 2 4 6 8 10

Time (Years)

### Exponential Growth:

Notice that this quantity is

greater than 1.

If it was less than 1, the

graph would reflect

Exponential Decay.

Exponential Growth and Decay Model y = Cax

Let a and C be real numbers, with C > 0 ,

If a < 1, the model

is exponential decay

If a > 1, the model

is exponential growth