1. Compound Interest pp. 208-210 5-5 SECTION

2. Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 2 of 14 5-5 Section Objective Figure out: compound interest amount

3. Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 3 of 14 5-5 compound interest (p. 208) Interest earned not only on the principal in a bank account, but also on the interest earned on the account, or interest on interest. Key Words to Know

4. Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 4 of 14 5-5 Amount = Principal + Interest Formula 1

5. Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 5 of 14 5-5 Compound Interest = Amount – Original Principal Formula 2

6. Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 6 of 14 5-5 Give an example of compound interest. How does it work? Understanding the Williams Sisters p. 208

7. Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 7 of 14 5-5 Jamal Quillet deposited $1,800 in a savings account, which earns 6 percent interest that is compounded quarterly. He made no deposits or withdrawals. What is the amount in the account at the end of the second quarter? Example 1

8. Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 8 of 14 5-5 Step: Find the amount for each quarter. Example 1 Answer

9. Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 9 of 14 5-5 Example 1 Answer (cont.)

10. Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 10 of 14 5-5 In Example 1 Jamal Quillet deposited $1,800 in a savings account that earns 6 percent interest compounded quarterly. You determined that the amount in his account at the end of the second quarter was $1,854.41. What is the compound interest? Example 2

11. Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 11 of 14 5-5 Step: Figure out the compound interest. Amount – Original Principal $1,854.41 – $1,800.00 = $54.41 Example 2 Answer

12. Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 12 of 14 5-5 Alison Strauss deposited $2,500 in a savings account which pays 5¼ percent interest compounded quarterly. She made no deposits or withdrawals. a. What was the amount in the account at the end of the second quarter? b. How much is the compound interest? Practice 1

13. Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 13 of 14 5-5 a. $2,566.06 b. $66.06 Practice 1 Answer

14. Compound Interest 5-5 END OF SECTION