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**Sullivan PreCalculus Section 4.7 Compound Interest**

Objectives of this Section Determine the Future Value of a Lump Sum of Money Calculate Effective Rates of Return Determine the Present Value of a Lump Sum of Money Determine the Time Required to Double or Triple a Lump Sum of Money

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**Interest is the money paid for the use of money**

Interest is the money paid for the use of money. The total amount borrowed is called the principal. The rate of interest, expressed as a percent, is the amount charged for the use of the principal for a given period of time, usually on a yearly (per annum) basis.

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**Simple Interest Formula**

I = Prt The amount A after t years due to a principal P invested at an annual interest rate r compounded n times per year is

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**Suppose your bank pays 4% interest per annum**

Suppose your bank pays 4% interest per annum. If $500 is deposited, how much will you have after 3 years if interest is compounded … a) Annually (b) Monthly

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The amount A after t years due to a principal P invested at an annual interest rate r compounded continuously is Suppose your bank pays 4% interest per annum. If $500 is deposited, how much will you have after 3 years if interest is compounded continuously?

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The present value P of A dollars to be received after t years, assuming a per annum interest rate r compounded n times per year, is If interest is compounded continuously, then

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How much should you deposit today in order to have $20,000 in three years if you can earn 6% compounded monthly from a bank C.D.?

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**How long will it take to double an investment earning 10% per annum compounded quarterly?**

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Compound Interest Section 5. Objectives Determine the future value of a lump sum of money Calculate effective rates of return Determine the present value.

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