Chapter 10: Compound Interest, Future Value, and Present Value  Find the future value and compound interest by compounding manually.  Find the future.

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Presentation transcript:

Chapter 10: Compound Interest, Future Value, and Present Value  Find the future value and compound interest by compounding manually.  Find the future value and compound interest by using a $1.00 future value table.  Find the future value and compound interest using a formula (optional).  Find the effective interest rate.  Find the interest compounded daily using a table.

Key Terms Interest period: the amount of time which interest is calculated and added to the principal. Compound interest: the total interest that accumulated after more than one interest period. Future value, maturity value, compound amount: the accumulated principal and interest after one or more interest periods. Period interest rate: the rate for calculating interest for one interest period-the annual interest rate is divided by the number of periods per year.

Find the Future Value and Compound Interest by Compounding Manually Dividing the annual interest rate by the annual number of interest periods gives us the period interest rate. 12% annual interest rate divided by 2 interest periods yields a period interest rate of 6%, for example. Using I = P x R x T, we can calculate the interest per period, simplifying the formula to I = P x R, since T is one period.

Find the period interest rate Period interest rate = Annual interest rate Number of interest periods per year