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Compound Interest

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Interest Definition: A charge for borrowed money generally a percentage of the borrowed amount. Context: A person makes a deposit with a financial institution, which promises a certain rate of interest per year, paid after specified intervals of time. This is a growth problem! Examples: Savings account, loans, credit cards, etc.

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Compound Interest Definition: Interest charged on both the principal amount as well as on the interest already earned. When entering an equation into the calculator do not forget the parentheses.

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**Compound Interest Example**

Find an equation for the following context if the input is the number of years: Fred invests $12,000 in an account that offers 3.2% annual interest compounded semiannually. 2 times a year . . 3.2% = 0.032 . 2 1 Decimal Rate The initial value Number of Intervals

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**Compound Interest Example**

Continued… Fred invests $12,000 in an account that offers 3.2% annual interest compounded semiannually. If there are no withdrawals, how much money is in the account after 5 years? x = 5 years

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© 2009 Cengage Learning/South-Western The Time Value Of Money Chapter 3.

© 2009 Cengage Learning/South-Western The Time Value Of Money Chapter 3.

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