Section 5.7 Financial Models. A credit union pays interest of 4% per annum compounded quarterly on a certain savings plan. If $2000 is deposited.

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Presentation transcript:

Section 5.7 Financial Models

A credit union pays interest of 4% per annum compounded quarterly on a certain savings plan. If $2000 is deposited in such a plan and the interest is left to accumulate, how much is in the account after 1 year?

Find the amount A that results from investing a principal P of $2000 at an annual rate r of 8% compounded continuously for a time t of 1 year.

The effective rate of interest is the equivalent annual simple rate of interest that would yield the same amount as compounding after 1 year. Suppose that you have $1000 and a bank offers to pay you 3% annual interest on a savings account with interest compounded monthly. In one year:

Suppose you want to open a money market account. You visit three banks to determine their money market rates. Bank A offers you 4% annual interest compounded daily, Bank B offers you 4.1% compounded monthly, and Bank C offers 3.95% compounded continuously. Determine which bank is offering the best deal. Bank A Bank BBank C Bank B is offering the best deal

(a) 7% compounded monthly? (b) 6% compounded continuously?

What annual rate of interest compounded quarterly should you seek if you want to double your investment in 6 years? The annual rate of interest needed to double the principal in 6 years is 11.72%.

(a) How long will it take for an investment to double in value if it earns 6% compounded continuously? (b) How long will it take to triple at this rate?