1. Savings Accounts
Chapter 3 Section 6

2. Definitions
Interest: Money paid to an individual or institution for the privilege of using their money.
Transaction: A deposit or withdrawal that has to be recorded.
Compound Amount: The total in a savings account at the end of an interest period after compound interest is added.
Compound Interest: The difference between the original principal and the compound amount; interest figured on interest after it has been added to principal.

3. How to Read Chart on Page 113
Formulas
Interest = Principal X Rate X Time (I= PRT)
How to Read Chart on Page 113
Take the # of times the principal will be compounded and go over to the interest rate. Use this value (number) for the above equation below.
Compound Amount = Principal x Value (from chart on page 113)
Compound Interest = Compound Amount - Principal

4. #1. a.
Find the first interest payment on $438 at 3.00% annual interest paid quarterly.
I = PRT
I = $ X .03 X .25
I = $3.285
I = $3.29

5. #1. b.
Find the first interest payment on $306 at 5.00% annual interest paid semiannually.
I = PRT
I = $ X .05 X .5
I = $7.65

6. #6 Annual interest rate: 4% Interest paid: Quarterly I = PRT
Date
Interest
Balance
Oct. 1, 2009
$900.00
Jan. 1, 2010
$9.00
$909.00
April 1, 2010
$9.09
$918.09
July 1, 2010
$9.18
$927.27
Oct. 1, 2010
$9.27
$936.54
I = PRT
Jan. 1, 2020: I = $ X .04 X .25
I = $9.00
Balance = $ $9.00
April 1, I = $ X .04 X .25

7. #14
A deposit of $500 earns 10% annual interest for 3 years. What compound interest will the deposit earn if interest is compounded semiannually?
Rate in table = Annual Rate / # of periods per year
10% / 2 interest periods per year = 5%
Total Interest Periods = Deposit Term (in years) X # of Interest Periods per 1 Year
3 years X 2 interest periods per year = 6 Total Interest Periods
Use the chart and find 5% for 6 interest periods

8. #14 cont. Compound Amount = $500 x 1.340096 = $670.048 = $670.05
Compound Interest = $ $500 = $170.05

9. Compound Interest without using the Chart
FV = PV (1 + i/n)yn
n = number of times compounded per year
y = number of years
Put $500 in a savings account for 3 years compounded semiannually at 10% interest.
FV = 500 ( /2)3*2
FV = 500 (1.05)6
FV = 500 ( )
FV =
FV = $670.05