Homework check What is your bank account's interest rate? TD Canada Trust Scotiabank Bank of Montreal Royal Bank ING Direct Spea kers? CIBC

Comparing Simple and Compound Interest Re minder: Interest Formula Example 1 Courtney invested $1200 for 2 years in a mutual fund that paid 3.6% interest per year with the interest COMPOUNDED ANNUALLY. a)Determine the final amount of her investment b)Calculate the total interest that Courtney earned on her investment

Example 2 A 4 year GIC (Guaranteed Investment Certificate) is available from a Canadian bank, offers a simple interest rate of 5.5% per year. Another institution offers a 4 year GIC with an annual interest rate of 5.5% compounded annually. Compare the amount and the interest earned on $3000 for each investment option using tables and graphs. YearPrincipalInterest EarnedAmount at end of the Year 13000(3000)(0.055)(1)=___________+3000 = _______ 23000(3000)(0.055)(1)=___________ + ________ = _________ 33000(3000)(0.055)(1)=___________ + ________ = _________ 43000(3000)(0.055)(1)=___________ + ________ = _________ Simple Interest YearPrincipalInterest EarnedAmount at end of the Year 13000(3000)(0.055)(1)=___________+3000 = _______ 2(_______)(0.055)(1)=____ __ _____ + ________ = _________ 3(_______)(0.055)(1)=____ __ _____ + ________ = _________ 4(_______)(0.055)(1)=____ __ _____ + ________ = _________ Compound Interest

Interest Earned Investment Amount Interest Earned

Review Compounding Period Frequencies *Annually - once a year *Monthly - 12 times a year *Semi-annually - twice a year Semi-monthly - 24 times a year (twice a month) * Weekly - 52 times a year *Quarterly - 4 times a year Bi-monthly - 6 times a year (Every 2 months) B i-weekly - 26 times a year (Every 2 weeks)

Example 3 A financial institution offers a 1½ year investment with a guaranteed annual interest rate of 2.75% The interest rate is compounded semi- annually. a) Calculate the final amount on an initial investment of $2500. b) Suppose the interest is compounded annually. How would the amount compare with part a?

The more frequent the compounding, the more interest earned.

Homework Pg. 352 #3,4,6,8,10 Quiz Next Class Simple Interest & Compound Interest