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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?

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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

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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

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

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Figure 5.6

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

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

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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

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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

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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

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

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

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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

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$8.69 Practice 1 Answer

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Isabella Achacoso has a balance of $20,000 in her savings account on July 3. That same day, she deposits $2,000 in her account. She deposits another $1,000 on July 19. What amount will she have in her account on July 31 if it pays 5.5 percent interest compounded daily? How much is compound interest? Practice 2

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Amount in account on July 31: $23,094.52 Compound interest: $94.52 Practice 2 Answer

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