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Certificates of Deposit pp. 394-396 12-1 SECTION.

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Presentation on theme: "Certificates of Deposit pp. 394-396 12-1 SECTION."— Presentation transcript:

1 Certificates of Deposit pp. 394-396 12-1 SECTION

2 Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Section Objective Use tables to compute: interest on certificates of deposit

3 Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill 12-1 certificate of deposit (p. 394) A kind of savings account that requires a specific deposit for a specified period of time, and which earns a higher rate of interest than a regular savings account. Key Words to Know

4 Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Amount = Original Principal × Amount per $1.00 Formula 1

5 Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Interest Earned = Amount – Original Principal Formula 2

6 Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Life after Working Shifts p. 394 If you want to find the best rate for a CD, is it best to consult only your neighborhood bank?

7 Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Paul Crates invests $4,000 in a 1-year certificate of deposit that earns interest at an annual rate of 5 percent compounded monthly. How much interest will he earn at the end of 1 year? (Refer to the Amount of $1.00 Invested—Daily, Monthly, and Quarterly Compounding table on page 800 of your textbook.) Example 1

8 Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Find the amount. Original Principal × Amount per $1.00 $4,000 × 1.051162 = $4,204.648 or $4,204.65 Example 1 Answer: Step 1

9 Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Find the interest earned. Amount – Original Principal $4,204.65 – $4,000.00 = $204.65 Example 1 Answer: Step 2

10 Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Ching-Hsia Chan can invest $5,000 in a 1- year CD at 4 percent compounded monthly or a 1-year CD compounded daily. What is the difference earned in each investment? Example 2

11 Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Find the interest earned in each investment. Monthly: $5,000 × 1.040742 = $5,203.71 $5,203.71 – $5,000 = $203.71 Daily: $5,000 × 1.040808 = $5,204.04 $5,204.04 – $5,000 = $204.04 Example 2 Answer: Step 1

12 Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Find the difference earned in each investment. Difference: $204.04 – $203.71 = $0.33 Example 2 Answer: Step 2

13 Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Refer to the Amount of $1.00 Invested—Daily, Monthly, and Quarterly Compounding table on page 800 of your textbook. $25,000 at 7.75 percent for 1 year compounded daily or 1 year compounded monthly. Find the difference in the amount of interest for each investment. Practice 1

14 Click to edit Master text styles Second level Third level Fourth level Fifth level 14 SECTION Copyright © Glencoe/McGraw-Hill 12-1 $6.50 Practice 1 Answer

15 Click to edit Master text styles Second level Third level Fourth level Fifth level 15 SECTION Copyright © Glencoe/McGraw-Hill 12-1 Refer to the Amount of $1.00 Invested—Daily, Monthly, and Quarterly Compounding table on page 800 of your textbook. $4,500 invested at 8.75 percent for 4 years compounded daily or 9 percent for 4 years compounded quarterly. What is the amount of each CD at maturity? Which CD earns the most interest? By how much? Practice 2

16 Click to edit Master text styles Second level Third level Fourth level Fifth level 16 SECTION Copyright © Glencoe/McGraw-Hill 12-1 8.75% compounded daily is worth $6,385.54 9% compounded quarterly is worth $6,424.29 9% compounded quarterly earns $38.75 more than 8.75% compounded daily Practice 2 Answer

17 Certificates of Deposit 12-1 END OF SECTION

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