Interest compounded during the year Savings and Money

Interest compounded during the year Savings and Money Markets part 2

Vocabulary ► APY-Annual percentage yield-interest rate per year ► Compound Interest-interest growing upon interest ► Compounded monthly-12 times per year ► Compounded Weekly-52 times per year ► Compounded Daily-365 times per year ► Principle-original amount deposited in account

Formula and Example (Principle) * (1 + APY%/# of Compounds)=one compounded time interval. ► Repeat for each Time interval. ► ► For example repeat 12 times if you want to know what will be there at the end of the year.

Example Alex has a money market that has a 4% APY that gets compounded monthly. Alex deposits $5, 000 into the money market. How much money is in the money market at the end of one year? 1 st month = 5000 * (1 +. 04/12)=5016. 67 2 nd month = 5016. 67 * (1 +. 04/12)=5033. 39 3 rd month = 5033. 39 * (1 +. 04/12)=5050. 17 4 th month = 5050. 17 * (1 +. 04/12)=5067 5 th month = 5067 * (1 +. 04/12)=5083. 89 6 th month = 5083. 89 * (1 +. 04/12)=5100. 84 7 th month = 5100. 84 * (1 +. 04/12)=5117. 84 8 th month = 5117. 84 * (1 +. 04/12)=5134. 90 9 th month = 5134. 90 * (1 +. 04/12)=5152. 02 10 th month = 5152. 02 * (1 +. 04/12)=5169. 19 11 th month = 5169. 19 * (1 +. 04/12)=5186. 42 12 th month = 5186. 42 * (1 +. 04/12)=5203. 70 At the end of that year, Alex would have $5, 203. 70 Alex would have only gotten $5, 200 with simple interest.