Compounded and Continuous Interest

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Presentation transcript:

Compounded and Continuous Interest U1D6

Warm Up

Homework

What is compounded interest? Compounded interest is when a bank pays interest on both the principal (the original amount of money) and the interest an account has already earned.

Formula

Example If you start a bank account with $10,000 and your bank compounds the interest quarterly at an interest rate of 8%, how much money do you have after 3 years?

What is continuous compounded interest? Continuously compounded interest means that your principal is constantly earning interest and the interest keeps earning on the interest earned!

Formula

Example If you invest $1,000 at an annual interest rate of 5% compounded continuously, calculate the final amount you will have in the account after five years.