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COMPOUND INTEREST
Unit 3 Day 3
DO-NOW


(
)
0.03x
Is f (x) = 1000 1+
an exponential
function? Explain why or why not.
1
12
Express 12% as a decimal. Express 7% as a
decimal. Express 7.5% as a decimal.
Also, please take a calculator if you do not have
your own.
COMPOUND INTEREST

Money in a bank account earns interest at a
certain annual rate, a certain number of times a
year.

Each time the interest is added, the new total is
reinvested.
( nt )
æ rö
A = Pç1+ ÷
è nø
A = final amount (after t years)
P = principal (initial deposit)
r = annual interest rate (decimal)
n = number of times interest is
compounded per year
• t = number of years
•
•
•
•
MORE ON n: NUMBER OF TIMES PER YEAR
Annually: n =
 Semiannually: n =
 Quarterly: n =
 Monthly: n =
 Weekly: n =
 Daily: n =

( nt )
COMPOUND INTEREST
1.
æ rö
A = Pç1+ ÷
è nø
$1500 is invested at rate of 10% per year,
compounded monthly. What is the balance after
12 years?





A=
P=
r=
n=
t=
( nt )
COMPOUND INTEREST
2.
æ rö
A = Pç1+ ÷
è nø
$2100 is invested at rate of 7% per year,
compounded monthly. What is the balance after
10 years?





A=
P=
r=
n=
t=
( nt )
SOLVING FOR P

æ rö
A = Pç1+ ÷
è nø
Determine the amount of money that should be
invested at a rate of 3% per year, compounded
monthly, if you want a final balance of $1,000 in
5 years.





A=
P=
r=
n=
t=
CLOSURE:

$10,000 is invested at rate of 4% per year,
compounded quarterly. What are the given
values of…
a)
b)
c)
P=
r=
n=