Planning Ahead Saving money is an important part of financial freedom and responsibility. What are the advantages of having a savings account?

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Presentation transcript:

Planning Ahead Saving money is an important part of financial freedom and responsibility. What are the advantages of having a savings account?

daily compounding Interest that is computed each day and added to the account balance. Lesson Objective Calculate the interest for daily compounding. Content Vocabulary daily compounding

You deposit $8,000 in an account that pays 5.5 percent interest compounded daily. How much interest will you earn in 31 days? Example 1

Find the amount of $1.00 for 31 days using the following table. Example 1 Answer: Step 1

Figure 5.6

Find the amount. Original Principal × Amount of $1.00 $8, × = $8, Example 1 Answer: Step 2

Find the compound interest. Amount – Original Principal = Compound Interest $8, – $8, = $37.44 Example 1 Answer: Step 3

On May 31, Deloris Zelms deposited $1,000 in a saving account that pays 5.5 percent interest compounded daily. On July 1 how much interest had been earned on the principal in her account? Example 2

Find the number of days from May 31 to July 1. Use the Elapsed Time Table on page A10 of your textbook. July 1 is day 182. May 31 is day – 151 = 31 days Example 2 Answer: Step 1

Find the amount of $1.00 for 31 days using the Compound InterestAmount of $1.00 table on page A10 of your textbook. It is Example 2 Answer: Step 2

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

Find the compound interest. Amount – Original Principal $1, – $1, = $4.68 Example 2 Answer: Step 4

On April 20, Veronica Osborne deposited $1,600 in a savings account. The account pays 5.5 percent interest compounded daily. How much interest will the money earn by May 26? Practice 1

$8.69 Practice 1 Answer

Isabella Achacoso has a balance of $20,000 in her savings account on July 3. That same day, she deposits $2,000 in her account. She deposits another $1,000 on July 19. What amount will she have in her account on July 31 if it pays 5.5 percent interest compounded daily? How much is compound interest? Practice 2

Amount in account on July 31: $23, Compound interest: $94.52 Practice 2 Answer