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

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Presentation transcript:

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

Section Objective Find: compound interest using tables

Formula 1 Amount = Original Principal × Amount of $1.00

Formula 2 Compound Interest = Amount – Original Principal

Understanding the Williams Sisters p. 211 In your own words, how do you read a chart in order to find the information you need?

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

Example 1 Answer: Step 2 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 3 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 4 Find the amount. Original Principal × Amount of $1.00 $3,000.00 × 1.12649 = $3,379.47

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

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

Example 2 Answer: Step 3 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 4 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 5 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 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 7 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

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

Practice 1 Answer $9,767.53

Practice 2 $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 Answer $1,900 invested at 6.25 percent compounded semiannually for 5 years: $2,584.61 Interest earned in 5 years: $684.61

END OF SECTION 5-6 Compound Interest Tables