Press Ctrl-A ©G Dear 2009 – Not to be sold/Free to use Compound Interest Stage 5 - Year 10

2 Compound Interest (1/4) future value$ %p.a.3 years What is the future value of $ at 10% p.a. for 3 years? PrincipalYear 1 Principal Year 1 = $ Interest Year Interest Year 1 = 0.10 x $10 000= $1 000 Principal Year 2 Principal Year 2 = $ $1 000= $ Interest Year Interest Year 2 = 0.10 x $ = $1 100 Principal Year 3 Principal Year 3 = $ $1 100= $ Interest Year Interest Year 3 = 0.10 x $ = $1 210 Future Value Future Value = $ $1 210 $ = $ Initial

3 Compound Interest Formula (2/4) future value$ %p.a.3 years What is the future value of $ at 10% p.a. for 3 years? P = $ n = 3 years r = 0.10 A = P(1 + r) n = ( ) 3 = x = $13 310

4 Compound Interest (3/4) Fry remembers he had a bank account back in the twentieth century. Surprisingly his old bank account is still active, and has been accruing interest for the past thousand years, bringing the balance from 93 cents to $4.3 billion. Was the interest really $4.3 billion? Futurama Episode – April 27 th 1999 A Fishful of Dollars (S1/E6) Video Clip Video Clip

5 Compound Interest (4/4) Futurama Episode – April 27 th 1999 A Fishful of Dollars (S1/E6) P = $ 0.93 n = years Video Clip Video Clip r = 2.25% A = P(1 + r) n = 0.93( ) 1000 = 0.93 x = $ = $4.3 Billion