# Planning Ahead Saving money is an important part of financial freedom and responsibility. What are the advantages of having a savings account?

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Planning Ahead Saving money is an important part of financial freedom and responsibility. What are the advantages of having a savings account?

daily compounding Interest that is computed each day and added to the account balance. Lesson Objective Calculate the interest for daily compounding. Content Vocabulary daily compounding

You deposit \$8,000 in an account that pays 5.5 percent interest compounded daily. How much interest will you earn in 31 days? Example 1

Find the amount of \$1.00 for 31 days using the following table. Example 1 Answer: Step 1

Figure 5.6

Find the amount. Original Principal × Amount of \$1.00 \$8,000.00 × 1.00468 = \$8,037.44 Example 1 Answer: Step 2

Find the compound interest. Amount – Original Principal = Compound Interest \$8,037.44 – \$8,000.00 = \$37.44 Example 1 Answer: Step 3

On May 31, Deloris Zelms deposited \$1,000 in a saving account that pays 5.5 percent interest compounded daily. On July 1 how much interest had been earned on the principal in her account? Example 2

Find the number of days from May 31 to July 1. Use the Elapsed Time Table on page A10 of your textbook. July 1 is day 182. May 31 is day 151. 182 – 151 = 31 days Example 2 Answer: Step 1

Find the amount of \$1.00 for 31 days using the Compound InterestAmount of \$1.00 table on page A10 of your textbook. It is 1.00468. Example 2 Answer: Step 2

Find the amount. Original Principal × Amount of \$1.00 \$1,000.00 × 1.00468 = \$1,004.68 Example 2 Answer: Step 3

Find the compound interest. Amount – Original Principal \$1,004.48 – \$1,000.00 = \$4.68 Example 2 Answer: Step 4

On April 20, Veronica Osborne deposited \$1,600 in a savings account. The account pays 5.5 percent interest compounded daily. How much interest will the money earn by May 26? Practice 1