1. Copyright © 2008 Pearson Education Canada10-1 Contemporary Business Mathematics With Canadian Applications Eighth Edition S. A. Hummelbrunner/K. Suzanne Coombs PowerPoint: D. Johnston Chapter 10 Compound Interest— Further Topics

2. Copyright © 2008 Pearson Education Canada10-2 Objectives After completing chapter ten, the student will be able to : Determine the number of conversion periods. Find equated dates. Compute periodic and nominal rates of interest. Compute the effective rate of interest. Compute equivalent rates of interest.

3. Copyright © 2008 Pearson Education Canada10-3 Finding n

4. Copyright © 2008 Pearson Education Canada10-4 Rule of 70 Should be used for Approximate Answers Only

5. Copyright © 2008 Pearson Education Canada10-5 Rule of 70

6. Copyright © 2008 Pearson Education Canada10-6 Equated Date The equated date is the date on which a single sum of money is equal to the sum of two or more dated values. Use t = 0 as the focal date when setting up the equation of value for finding an equated date.

7. Copyright © 2008 Pearson Education Canada10-7 Finding the Equated Date

8. Copyright © 2008 Pearson Education Canada10-8 Finding the Equated Date (continued)

9. Copyright © 2008 Pearson Education Canada10-9 Finding i

10. Copyright © 2008 Pearson Education Canada10-10 Effective Rate of Interest The effective rate is the equivalent rate of interest compounded annually. Effective rates can be used to compare nominal rates of interest. An effective rate can be found by computing the future value (FV) of $1 after one year and then subtracting the $1 of principal.

11. Copyright © 2008 Pearson Education Canada10-11 Finding an Effective Rate

12. Copyright © 2008 Pearson Education Canada10-12 Electronic Calculator Solution

13. Copyright © 2008 Pearson Education Canada10-13 Determining Effective Rate f

14. Copyright © 2008 Pearson Education Canada10-14 Calculating Effective Rates Nominal rate is 6%

15. Copyright © 2008 Pearson Education Canada10-15 Equivalent Rates Interest rates that increase a given principal to the same future value over the same time period are equivalent. Find equivalent rates by equating the accumulated or FV of $1 for rates under consideration based on a selected time period, usually a year.

16. Copyright © 2008 Pearson Education Canada10-16 Equivalent Rates Assume one year time period

17. Copyright © 2008 Pearson Education Canada10-17 Finding Equivalent Rates

18. Copyright © 2008 Pearson Education Canada10-18 Finding Equivalent Rates (continued)

19. Copyright © 2008 Pearson Education Canada10-19 Finding the nominal rate (continued)

20. Copyright © 2008 Pearson Education Canada10-20 Calculator Solution

21. Copyright © 2008 Pearson Education Canada10-21 An Alternate Calculator Solution

22. Copyright © 2008 Pearson Education Canada10-22 Summary Effective and equivalent interest rates can be used to compare different nominal rates with varying compounding intervals.