Compound Interest Making Money!!!

Compound Interest Solving by Hand A=P(1+r/n)nt P - Initial principal r – annual rate expressed as a decimal n – compounded n times a year t – number of years A – amount in account after t years

Number of Times Compounded Annually – 1 year Quarterly – 4 Monthly – 12 Weekly – 52 Daily - 365

Compound interest example You deposit $1000 in an account that pays 8% annual interest. Find the balance after I year if the interest is compounded with the given frequency. a) annually b) quarterly c) daily A=1000(1+ .08/1)1x1 = 1000(1.08)1 ≈ $1080 A=1000(1+.08/4)4x1 =1000(1.02)4 ≈ $1082.43 A=1000(1+.08/365)365x1 ≈1000(1.000219)365 ≈ $1083.28

TVM Solver in Calculator Start with the APPS Button Go to the Finance App Go to TVM Solver N= Years X ___ I%= Interest PV= Present Value PMT= Payment FV= Future Value P/Y= C/Y= Depending on the question being ask, or the information given, different information will be entered.

Example 1: Marie deposits $1,650 for three years at 3% interest, compounded daily. What is her ending balance? N= 3 x 365 I%=3 PV=-1650 PMT=0 FV=Alpha Solve P/Y=365 C/Y=365 Answer: $1,805.38

Example 2: Sharon deposits $8,000 in a one year CD at 3.2% interest, compounded weekly. What is her ending balance? Answer : $8, 260.06 What would be the ending balance if the interest was compounded monthly? Answer: $8,258.79 What would be the balance if the interest was compounded quarterly? Answer: $8,259.09