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Compound Interest Tables pp. 214-213 5-6 SECTION

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Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 2 of 24 5-6 Amount = Original Principal × Amount of $1.00 Formula 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 3 of 24 5-6 Compound Interest = Amount – Original Principal Formula 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 4 of 24 5-6 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 797 of your textbook to solve this problem.) Example 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 5 of 24 5-6 Find the total interest periods. Periods per Year × Number of Years 4 quarters per year × 2 years = 8 periods Example 1 Answer: Step 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 6 of 24 5-6 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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 7 of 24 5-6 Find the amount for 8 periods at 1.5 percent per period using the Compound Interest— Amount of $1.00 table on page 797 of your textbook. It is 1.12649. Example 1 Answer: Step 3

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Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 8 of 24 5-6 Find the amount. Original Principal × Amount of $1.00 $3,000.00 × 1.12649 = $3,379.47 Example 1 Answer: Step 4

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Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 9 of 24 5-6 Find the compound interest. Amount – Original Principal $3,379.47 – $3,000.00 = $379.47 Example 1 Answer: Step 5

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Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 10 of 24 5-6 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 years if he continues to pay 6 percent interest compounded quarterly? Example 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 11 of 24 5-6 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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 12 of 24 5-6 Find the interest rate per period. Annual Rate ÷ Number of Periods per Year 6% ÷ 4 = 1.5% Example 2 Answer: Step 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 13 of 24 5-6 Find the amount of $1.00 for 2 periods at 1.5 percent per period using the Compound Interest—Amount of $1.00 table on page 797. It is 1.03023. Example 2 Answer: Step 3

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Click to edit Master text styles Second level Third level Fourth level Fifth level 14 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 14 of 24 5-6 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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 15 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 15 of 24 5-6 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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 16 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 16 of 24 5-6 Find the amount of $1.00 for 6 periods at 1.5 percent per paid using the Compound Interest—Amount of $1.00 table on page 797. It is 1.09344. Example 2 Answer: Step 6

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Click to edit Master text styles Second level Third level Fourth level Fifth level 17 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 17 of 24 5-6 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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 18 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 18 of 24 5-6 $8,240 invested at 5.75 percent compounded semiannually for 3 years. No additional deposits or withdrawals. Find the amount. Practice 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 19 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 19 of 24 5-6 $9,767.53 Practice 1 Answer

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Click to edit Master text styles Second level Third level Fourth level Fifth level 20 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 20 of 24 5-6 $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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 21 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 21 of 24 5-6 $1,900 invested at 6.25 percent compounded semiannually for 5 years: $2,584.61 Interest earned in 5 years: $684.61 Practice 2 Answer

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