Lesson 13 4 Compound Interest If interest earned

Lesson 13. 4: Compound Interest If interest earned on an investment is compounded annually, we use the following function to model this situation. where P is the initial amount invested (called the principal), r is the interest rate, and V is the value of the investment at time t.

Example A person invests $3500 in an account that earns 3% annual interest. How much money will the person have in the account after 10 years?

Compounding Interest Multiple Times a Year If interest earned on an investment is compounded more than once a year, we use the following function to model this situation. where P is the principal investment, r is the annual interest rate, and n is the number of times that interest is compounded in a year.

Example A person invests $1000 in an account that earns 4% annual interest compounded quarterly. How much money will the person have at the end of one year? How does this differ from compounding annually?

Example A person invests $8000 in an account that can earn either 6. 5% annual interest compounded monthly or 6% annual interest compounded daily (365 days a year). If the investment is for a 5 year period, which interest rate should the person choose?

Example Tanika plans to make a deposit to one of two accounts. Account A has a 3. 78% nominal rate with interest compounded daily, and Account B has a 3. 8% nominal rate with interest compounded monthly. Which account should she choose to maximize the interest earned.