 Planning Ahead Saving money is an important part of financial freedom and responsibility. What are the advantages of having a savings account?

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Planning Ahead Saving money is an important part of financial freedom and responsibility. What are the advantages of having a savings account?

compound interest table A tool to calculate compound interest quickly. Lesson Objective Find compound interest using a table and the compound interest formula. Content Vocabulary compound interest table

State Bank pays 6 percent interest compounded quarterly on regular savings accounts. You deposited \$3,000 for 2 years. You made no deposits or withdrawals. How much interest did you earn in 2 years? (Note: Use the Compound table on page A11 of your textbook to solve this problem.) Example 1

Find the total interest periods. Periods per Year × Number of Years 4 quarters per year × 2 years = 8 periods Example 1 Answer: Step 1

Find the interest rate per period. Periods per Year × Number of Years Annual Rate ÷ Number of Periods per Year 6% ÷ 4 = 1.5% Example 1 Answer: Step 2

Find the amount for 8 periods at 1.5 percent per period using the Compound Interest Amount of \$1.00 table on page A11 of your textbook. It is 1.12649. Example 1 Answer: Step 3

Find the amount. Original Principal × Amount of \$1.00 \$3,000.00 × 1.12649 = \$3,379.47 Example 1 Answer: Step 4

Find the compound interest. Amount – Original Principal \$3,379.47 – \$3,000.00 = \$379.47 Example 1 Answer: Step 5

Juan Lopez opens an account and deposits \$4,379.47. The account pays 6 percent annual interest and compounds quarterly. Six months later he deposits \$2,000. How much will he have in the account in 1½ more years if he continues to pay 6 percent interest compounded quarterly? Example 2

Find the total interest periods for first 6 months. Periods per Year × Number of Years 4 quarters per year × ½ year = 2 periods Example 2 Answer: Step 1

Find the interest rate per period. Annual Rate ÷ Number of Periods per Year 6% ÷ 4 = 1.5% Example 2 Answer: Step 2

Find the amount of \$1.00 for 2 periods at 1.5 percent per period using the Compound InterestAmount of \$1.00 table on page 797. It is 1.03023. Example 2 Answer: Step 3

Find the amount for 6 months. Original Principal × Amount of \$1.00 \$4,379.47 × 1.03023 = \$4,511.86 (new principal) Example 2 Answer: Step 4

Find the amount for 1.5 years. Periods per Year × Number of Years 4 quarters per year × 1.5 years = 6 periods Example 2 Answer: Step 5

Find the amount of \$1.00 for 6 periods at 1.5 percent per paid using the Compound InterestAmount of \$1.00 table on page 797. It is 1.09344. Example 2 Answer: Step 6

Find the amount for 1.5 years. New Principal × Amount of \$1.00 (\$4,511.86 + \$2,000.00) × 1.09344 = \$6,511.86 × 1.09344 = \$7,120.33 Example 2 Answer: Step 7

\$8,240 invested at 5.75 percent compounded semiannually for 3 years. No additional deposits or withdrawals. Find the amount. Practice 1

\$8,240 x 1.18538 = \$9,767.53 Practice 1 Answer

\$1,900 invested at 6.25 percent compounded semiannually for 5 years. No additional deposits or withdrawals. Find the amount. How much interest did the money earn in 5 years? Practice 2

\$1,900 invested at 6.25 percent compounded semiannually for 5 years: 1,900 x 1.36032 = \$2,584.61 Interest earned in 5 years: 2,584.61 – 1900 = 2,584.61 – 1900 = \$684.61 Practice 2 Answer

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