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

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Presentation transcript:

SECTION 5-5 Compound Interest pp. 208-210

Key Words to Know 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.

Formula 1 Amount = Principal + Interest

Formula 2 Compound Interest = Amount – Original Principal

P=Principal T= # of years R = Rate N = Times per year

Example 1 Dr. Evil 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 Answer Step: Find the amount for each quarter.

Example 1 Answer (cont.)

P=1800 R = .06 N = 4 T= .5 =1854.405$1854.41

Example 2 In Example 1 Dr. Evil 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 Answer Step: Figure out the compound interest. Amount – Original Principal $1,854.41 – $1,800.00 = $54.41

209-210: #2-14