1. Compounding Interest Formula It’s like Math, but not really

2. Compounding Formula: A = P(1+r/n) nt

3. Compounding Formula:

4. Example 1 1)Goal: You want to have $10,000 saved in five years. How much principal would you need to put away in a bank account offering a 4% APR and compounding monthly in order to reach that goal? A = P = r = n = t =

5. Example 1 A = P(1+r/n) nt A = $10,000 P = ?? r = 4% APR n = 12 months t = 5 years 1)Goal: You want to have $10,000 saved in five years. How much principal would you need to put away in a bank account offering a 4% APR and compounding monthly in order to reach that goal?

6. Example 1 A = P(1+r/n) nt 10000 = P(1+.04/12)^60 10000 = P(1.221) P = 10000 / 1.221 P = $8,190.01 A = $10,000 P = ?? r = 4% APR n = 12 months t = 5 years

7. Example 2 1)Your 3 year investment of $20,000 received 5.2% interested compounded semi annually. What is your total return? A = P = r = n = t =

8. Example 2 A = P(1+r/n) nt A = ?? P = 20000 r = 5.2% APR n = 2 times per year t = 3 years Your 3 year investment of $20,000 received 5.2% interested compounded semi annually. What is your total return?

9. Example 2 A = P(1+r/n) nt A = 20000(1+.052/2)^6 A = 20000(1.166) A = $23,320 A = ?? P = 20000 r = 5.2% APR n = 2 times/yr t = 3 years

10. Your Turn: Solve this Problem: Challenge: You have $8,250 to invest, and you won’t need the money until five years from now. You decide you will put the money into a bank account compounding monthly for that period of time. If the account pays 2% APR, how much will you have in your account at the end of five years?

11. Your Turn: Solve this Problem: Challenge: You have $8,250 to invest, and you won’t need the money until five years from now. You decide you will put the money into a bank account compounding monthly for that period of time. If the account pays 2% APR, how much will you have in your account at the end of five years?

12. Your Turn: A = P(1+r/n) nt A = P = r = n = t = Challenge: You have $8,250 to invest, and you won’t need the money until five years from now. You decide you will put the money into a bank account compounding monthly for that period of time. If the account pays 2% APR, how much will you have in your account at the end of five years?