Compound Interest. interest that actually earns interest itself to figure: –find the initial interest –add it to the principal –find the interest on the.

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Presentation transcript:

Compound Interest

interest that actually earns interest itself to figure: –find the initial interest –add it to the principal –find the interest on the new principal –add it to the principal –etc. etc. figured this way for the duration of the term

Compound Interest can be compounded: annually semi-annually quarterly monthly daily

Example Suppose Sam has $1000 that he puts in the bank at 6% interest compounded quarterly. How much does he have in the bank at the end of one year?

Example Kate invests $500 in an account with 3% interest that compounds monthly. How much will she have in the bank after six months?

Example Carmen invests money at a rate of 3.5% compounded semi-annually. How much will she have after 1 year if she invests $500? How much will she have after 2 years?