Compound Interest Making Money Compound Interest Solving by
Compound Interest Making Money!!!
Compound Interest Solving by Hand nt • A=P(1+r/n) • • • P - Initial principal r – annual rate expressed as a decimal n – compounded n times a year t – number of years A – amount in account after t years
Number of Times Compounded • Annually – 1 year • Quarterly – 4 • Monthly – 12 • Weekly – 52 • Daily - 365
Compound interest example • You deposit $1000 in an account that pays 8% annual interest. • Find the balance after I year if the interest is compounded with the given frequency. • a) annually b) quarterly c) daily A=1000(1+. 08/1)1 x 1 = 1000(1. 08)1 ≈ $1080 A=1000(1+. 08/4)4 x 1 =1000(1. 02)4 ≈ $1082. 43 A=1000(1+. 08/365)365 x 1 ≈1000(1. 000219)365 ≈ $1083. 28
TVM Solver in Calculator • Start with the APPS Button • Go to the Finance App • Go to TVM Solver N= Years X ___ I%= Interest PV= Present Value PMT= Payment FV= Future Value P/Y= C/Y= Depending on the question being ask, or the information given, different information will be entered.
Example 1: Marie deposits $1, 650 for three years at 3% interest, compounded daily. What is her ending balance? N= 3 x 365 I%=3 PV=-1650 PMT=0 FV=Alpha Solve P/Y=365 C/Y=365 Answer: $1, 805. 38
Example 2: • Sharon deposits $8, 000 in a one year CD at 3. 2% interest, compounded weekly. • What is her ending balance? Answer : $8, 260. 06 • What would be the ending balance if the interest was compounded monthly? Answer: $8, 258. 79 • What would be the balance if the interest was compounded quarterly? Answer: $8, 259. 09
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