# 3.5 Compound Interest Formula

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3.5 Compound Interest Formula

Imagine you deposit \$10,000 in a five-year cd. The account pays 5
Imagine you deposit \$10,000 in a five-year cd. The account pays 5.2% interested compounded daily. How much will your \$10,000 investment be worth by the end of the 5 years?

Compound Interest Formula
B = ending balance p = principal r = interest rate n = number of compounds per year t = time (in years)

Number of Compounds Annually Semiannually Quarterly Daily n = 1 n = 2
n = 365 (or 366 in a leap year)

Marie deposits \$1,650 for three years at 3% interest, compounded daily
Marie deposits \$1,650 for three years at 3% interest, compounded daily. What is her ending balance? p = \$1,650 r = 0.03 n = 365 t = 3

Kate deposits \$2,350 in an account that earns interest at a rate of 3
Kate deposits \$2,350 in an account that earns interest at a rate of 3.1%, compounded monthly. What is her ending balance after 5 years? p = \$2,350 r = 0.031 n = 12 t = 5

3.5 Compound Interest Formula

APR vs. APY APR APY Annual interest rate
Actual rate you earn with compounding interest To find APY:

Sharon deposits \$8,000 in a one year CD at 3
Sharon deposits \$8,000 in a one year CD at 3.2% interest, compounded daily. What is Sharon’s APY?

Barbara deposits \$3,000 in a one year CD at 4
Barbara deposits \$3,000 in a one year CD at 4.1% interest, compounded daily. What is her APY for the account?