Post on 02-Jan-2016
Compound Interest pp. 208-2105-5SECTIONSECTION
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 2 of 14
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Section ObjectiveSection ObjectiveFigure out:
• compound interest
• amount
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 3 of 14
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compound interest (p. 208)
Interest earned not only on the principal in a bank account, but also on the interest earned on the account, or interest on interest.
Key Words to KnowKey Words to Know
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 4 of 14
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Amount = Principal + Interest
Formula 1Formula 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 5 of 14
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Compound Interest = Amount – Original Principal
Formula 2Formula 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 6 of 14
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Give an example of compound interest. How does it work?
Understanding the Williams Sisters Understanding the Williams Sisters p. 208p. 208
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 7 of 14
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Jamal Quillet deposited $1,800 in a savings account, which earns 6 percent interest that is compounded quarterly. He made no deposits or withdrawals.
What is the amount in the account at the end of the second quarter?
Example 1Example 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 8 of 14
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Step: Find the amount for each quarter.
Example 1 AnswerExample 1 Answer
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 9 of 14
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Example 1 Answer (cont.)Example 1 Answer (cont.)
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 10 of 14
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In Example 1 Jamal Quillet deposited $1,800 in a savings account that earns 6 percent interest compounded quarterly. You determined that the amount in his account at the end of the second quarter was $1,854.41.
What is the compound interest?
Example 2Example 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 11 of 14
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Step: Figure out the compound interest.
Amount – Original Principal
$1,854.41 – $1,800.00 = $54.41
Example 2 AnswerExample 2 Answer
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 12 of 14
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Alison Strauss deposited $2,500 in a savings account which pays 5¼ percent interest compounded quarterly. She made no deposits or withdrawals.
a. What was the amount in the account at the end of the second quarter?
b. How much is the compound interest?
Practice 1Practice 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-5, Slide 13 of 14
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a. $2,566.06
b. $66.06
Practice 1 AnswerPractice 1 Answer
Compound Interest5-5END OF SECTIONEND OF SECTION