Math 1320 Chapter 2: The Mathematics of Finance 2.2 Compound Interest.

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Presentation transcript:

Math 1320 Chapter 2: The Mathematics of Finance 2.2 Compound Interest

Definition

Examples Calculate the FV of an investment of the given amount at the stated interest rate after the stated amount of time. Determine by how much each investment has grown. 1.$8000, at 4% per year, compounded semi- annually, for 8 years. 2.$16,000, at 2.5% per year, compounded quarterly, for 5 years. 3.$50,000, at 1.5% per year, compounded weekly, for 5 years.

Examples Calculate the PV of an investment that will be worth the given amount at the stated interest rate after the stated amount of time. 1.$7000, after 10 years, at 5% per year compounded monthly. 2.$12,500, after 5 years, at 7% per year compounded daily

Definition

Examples Find the effective annual interest rate. 1.5% compounded quarterly 2.5% compounded monthly 3.9% compounded monthly