CDs and Annual Yield Lesson 7.3.

Slides:

Advertisements

Similar presentations

What is Interest? Interest is the amount earned on an investment or an account. Annually: A = P(1 + r) t P = principal amount (the initial amount you borrow.

Advertisements

Section 6.7 Compound Interest. Find the amount A that results from investing a principal P of $2000 at an annual rate r of 8% compounded continuously.

Section 5.7 Compound Interest. A credit union pays interest of 4% per annum compounded quarterly on a certain savings plan. If $2000 is deposited.

7-8 simple and compound interest

Thinking Mathematically

Certificates of Deposit CD’s

Certificates of Deposit pp SECTION.

Notes Over 3.5Interest Simple interest is found by multiplying the principal, the rate, and the time. Compound interest is the total amount earned each.

You deposit $950 into an account that earns 4 % interest compounded annually. Find the balance in the account after five years. In your last calculation,

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Section 5.7 Financial Models.

Section 4.7: Compound Interest. Continuous Compounding Formula P = Principal invested (original amount) A = Amount after t years t = # of years r = Interest.

Section 5.7 Financial Models. A credit union pays interest of 4% per annum compounded quarterly on a certain savings plan. If $2000 is deposited.

Bellringer Calculate the Simple Interest for #s 1 and 3 and the Total cost for #2. 1.$1800 at 3.2% for 4 years. 2. $17250 at 7.5% for 6 years. 3. $3,650.

INTEREST. Simple Interest Compound Interest SIMPLE INTEREST VS. COMPOUND INTEREST Interest earned on the principal investment Earning interest on interest.

LEQ: How do you calculate compound interest?.  Suppose you deposit $2,000 in a bank that pays interest at an annual rate of 4%. If no money is added.

Compound Interest. homework Worksheet: Compound Interests.

Compound Interest. Compound Interest (except continuous) When the bank pays interest on both the principal and the interest an account has already earned,

ANNUAL PERCENTAGE YIELD APY Lesson Vocabulary Annual Percentage Yield (APY)- Also called effective annual yield is the rate of return on your investment.

Key Terms Section 8.1 & 8.2  How can your savings give you the flexibility in your life choices? *Savings Account *Commercial Bank *Credit Union Question.

Warm Up What is wealth and why is it desirable?. Definition of Wealth.

Simple Interest.

3-5 COMPOUND INTEREST FORMULA

Sullivan Algebra and Trigonometry: Section 6.6

Section 6.7 Financial Models.

CHAPTER 8 Personal Finance.

Math in Our World Section 8.3 D1 Compound Interest.

COMPOUND INTEREST Since this section involves what can happen to your money, it should be of INTEREST to you!

Compound Interest.

Section 5.7 Financial Models

Section 4.7 Compound Interest.

Savings Accounts Chapter 3 Section 6.

8.3 Compound Interest HW: (1-21 Odds, Odds)

Interest - Bearing Bank Accounts and Inflation

Section 10.3 Compound Interest

Compound Interest.

Warm-up: THE RULE OF 72 There is a quick way to estimate the time it takes for an  investment compounded annually to double in value. This  method is called.

COMPOUND INTEREST Since this section involves what can happen to your money, it should be of INTEREST to you! 

Lesson 6 Regular Annuities-Future Value

Lesson 2 The amount of an Annuity

SIMPLE AND COMPOUND INTEREST

Compound Interest.

Lesson 7.7 Simple and Compound Interest

Present Value Time Value of Money.

Unit 4: Financial Applications MAP 4C

CHAPTER TEN COMPOUND INTEREST.

COMPOUND INTEREST Since this section involves what can happen to your money, it should be of INTEREST to you! 

3.5 Exponential Growth & Decay

Savings and Interest Lesson 4.4.

SECTION 5-5 Compound Interest pp

Simple and Compound Interest

Section 11.3 Compound Interest

Calculating Interest Interest = the cost of ___________

COMPOUND INTEREST Since this section involves what can happen to your money, it should be of INTEREST to you! 

Section 11.3 Compound Interest

Savings and Interest Skill 11.

CHAPTER 8 Personal Finance.

Section 6.7 Financial Models

4.6 Compound Interest.

Chapter 5.2 Vocab.

HOW TO MAKE MONEY WITHOUT DOING ANY WORK

Bell Ringer Suppose Shawn deposited $2,500 in a savings account which earns 3.5% interest and is compounded monthly. Find the amount he has after six.

Time Value of Money Math

CDs and Annual Yield Lesson 25.

Compounded and Continuous Interest

Stocks and Dividends Lesson 7.4.

Stocks and Dividends Lesson 26.

Annual Percentage Yield APY

§8.3, Compound Interest.

6.1 Applications of Exp. Functions & 6.2 The Natural Exp. Function

Presentation transcript:

CDs and Annual Yield Lesson 7.3

Certificates of Deposit

A certificate of deposit (CD) is a way to invest money A certificate of deposit (CD) is a way to invest money. It earns more interest than a savings account.

Figure out the amount of the CD… Original Principal Amount * per $1 Amount = Figure out the interest earned on the CD… Interest Earned Original Principal = Amount -

= $5,308.39 = $308.39 Amount = Original Principal x Amt. per $1 You invest $5000 in a 1 year CD. It earns an annual interest rate of 6% compounded monthly. Find the amount. Find the interest earned after 1 year. Amount = Original Principal x Amt. per $1 = 5,000(1.061678) = $5,308.39 Interest= Amount – Original Principal = 5,308.39 – 5,000 = $308.39

You invest $3000 in a 1 year CD. It earns an annual interest rate of 7 Find the interest compounded quarterly. Find the interest compounded daily. Find the difference Amount = 3,000(1.077136) = $3,231.41 Interest = 3,231.41 – 3,000 = $231.41 Amount = 3,000(1.077876) = $3,233.63 Interest = 3,233.63 – 3,000 = $233.63 Difference = 233.63 – 231.41 = $2.22

Effective Annual Yield Section 12.2

Annual yield is used for simple interest. The annual yield is the rate at which your money earns simple interest in one year. Annual yield is used for simple interest. Effective annual yield is used in compound interest.

Figure out effective Annual yield… Interest for 1 year Principal

You invest $4000 in a 3 year CD. It earns an annual interest rate of 5% compounded monthly. Find the interest for 1 year. Find the effective annual yield. Amount = 4,000(1.051162) = $4,204.65 Interest = 4,204.65 – 4,000 = $204.65 = 204.65 4,000 E.A.Y. = 5.11625%

6% Quarterly is better. = $8,473.44 = $473.44 = 473.44 8,000 = 5.918% You invest $8000 in a 4 year CD. Effective annual yield at 5.75% compounded daily. Effective annual yield at 6% compounded quarterly. Find the better investment. Amount = 8,000(1.059180) = $8,473.44 Interest = 8,473.44 – 8,000 = $473.44 = 473.44 8,000 E.A.Y. = 5.918% Amount = 8,000(1.061364) = $8,490.91 Interest = 8,490.91 – 8,000 = $490.91 = 490.91 8,000 E.A.Y. = 6.1364% 6% Quarterly is better.

7.3: CDs and Annual Yield Questions Summarize your notes Homework Worksheet