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**3.5 Compound Interest Formula**

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**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?

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**Compound Interest Formula**

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

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**Number of Compounds Annually Semiannually Quarterly Daily n = 1 n = 2**

n = 365 (or 366 in a leap year)

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**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

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**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

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**3.5 Compound Interest Formula**

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**APR vs. APY APR APY Annual interest rate**

Actual rate you earn with compounding interest To find APY:

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**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?

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**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?

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EXAMPLE 5 Find the balance in an account You deposit $4000 in an account that pays 2.92% annual interest. Find the balance after 1 year if the interest.

EXAMPLE 5 Find the balance in an account You deposit $4000 in an account that pays 2.92% annual interest. Find the balance after 1 year if the interest.

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