Download presentation

Presentation is loading. Please wait.

Published byEliezer Burchett Modified over 2 years ago

1
11-2 Terms to be familiar with…

2
Interest

3
Money charged for the use of money

4
Principal

5
The amount of money initially invested

6
Account Balance

7
Amount of money in the account at a given time

8
Interest Rate

9
Percent charged annually a.k.a. APR

10
Compound Interest

11
Interest charged on interest

12
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously

13
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously 1

14
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously 12

15
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously 124

16
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously 12412

17
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously

18
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously

19
Number of times interest is usually compounded AnnuallySemi- annually QuarterlyMonthlyWeeklyDailyContinu- ously ∞

20
Compounded Interest Formula A = P = n = t = r =

21
Compounded Interest Formula A = Account Balance P = n = t = r =

22
Compounded Interest Formula A = Account Balance P = Principal n = t = r =

23
Compounded Interest Formula A = Account Balance P = Principal n = number of times in year interest is compounded t = r =

24
Compounded Interest Formula A = Account Balance P = Principal n = number of times in year interest is compounded t = time in years r =

25
Compounded Interest Formula A = Account Balance P = Principal n = number of times in year interest is compounded t = time in years r = annual percentage rate (as a decimal)

26
Compounded Interest Formula A = P(1 + r/n ) (nt)

27
Example1 $1200 is invested at an APR of 9%. Find the balance in five years if the interest is compounded a)quarterlyb) monthly

28
$1200 is invested at an APR of 9%. Find the balance in five years if the interest is compounded a)quarterly A = P = r = n = t =

29
$1200 is invested at an APR of 9%. Find the balance in five years if the interest is compounded a)quarterly A = ??? P = 1200 r =.09 n = 4 t = 5

30
A = 1200(1 +.09/4) (4∙5)

31
A = $

32
$1200 is invested at an APR of 9%. Find the balance in five years if the interest is compounded b)monthly A = P = r = n = t =

33
$1200 is invested at an APR of 9%. Find the balance in five years if the interest is compounded b)monthly A = ???? P = 1200 r =.09 n = 12 t = 5

34
A = 1200(1 +.09/12) (12∙5)

35
A = $

36
Example2 I would like to create a trust fund for my daughter that she can have in 18 years for college. I have $10,000 to invest. Which account would have a greater balance, one earning an APR of 6% compounded semiannually or one that earns an APR of 5.5% compounded daily?

37
6% compounded semiannually A = P = n = t = r =

38
6% compounded semiannually A = ??? P = 10,000 n = 2 t = 18 r =.06

39
A = 10000(1 +.06/2) (2∙18)

40
A = $28,982.78

41
5.5% compounded daily A = P = n = t = r =

42
5.5% compounded daily A = ??? P = 10,000 n = 365 t = 18 r =.055

43
A = 10000( /365) (365∙18)

44
A = $26,910.33

45
Example 3 I would like to retire with a balance of $100,000 in an annuity. Find the amount of money to invest initially (principal) if I want to retire in 30 years and I can invest at an APR of 7% compounded weekly.

46
7% compounded weekly A = 100,000 P = ??? n = 52 t = 30 r =.07

47
= P(1 +.07/52) (52∙30)

48
= P (1 +.07/52) (52∙30)

49
$12, = P

50
Example 4 At what interest rate do I need to invest $10,000 to double its value in 10 years if interest is compounded quarterly?

51
A = 20,000 P = 10,000 n = 4 t = 10 r = ????

52
20000 = 10,000(1 + r/4) (4∙10)

53
2 = (1 + r/4) (4∙10)

54
(2) 1/40 = ((1 + r/4) (40) ) 1/40

55
(2) 1/ = r/4

56
4((2) 1/40 – 1) = (r/4)∙4

57
4((2) 1/40 – 1) = r

58
r = = 6.99%

Similar presentations

© 2016 SlidePlayer.com Inc.

All rights reserved.

Ads by Google