CPM“Compound Interest”

The Compound Interest Formula can be used to determine how interest effects the amount paid on the principle that is compounded at different intervals of the year. The compound interest formula is:

(1 )ntr

A Pn

A=____________

P=___________

r=_______

n=_________

t=____________

Amount Owed/Earned

Principle

Rate

# of times compounded/year

Time in years

(1 )ntr

A Pn

n represents how many times the principle is compounded in a year.

Yearly___ Bi-yearly___ Quarterly___ Monthly___

Weekly___ Daily____

1 2 4 12

52 365

Example: Alexander The Great XXV deposited $26,450 into a savings account in 1921 at a rate of 3.25% that was compounded monthly. How much would he have in 1974?

A=_____ P=___________ r=_______ n=_________ t=____________? $26,450 0.0325 12 53

(12*53)0.032526,450(1 )

12A

Plug it in exactly like this in your calculator

Round to the nearest penny

$147,736.13That’s $121,286.13 over 53 years gained from interest

M.C. Hammer went to the bank to take out a loan after all of his investments force him to go broke. He was asking for a loan of a half a million dollars to produce a new record. The bank agreed to loan him the money at an extremely high rate of 13% for 10 years. The only perk Mr. M.C. Hammer was allowed to decide was how it was compounded. Find out what the overall amount would be if it was compounded every way.

Yearly: Bi-yearly: Quarterly: Monthly: Weekly: Daily:

$1,697,283.70 $1,761,822.53

$1,797,100.72 $1,821,866.64

$1,831,674.40 $1,834,223.75

The more times it is compounded a year, the interest will be paid

Daniel bought a 57” HDTV plasma from Best Buy over the weekend. The total cost, with the protection program, was $2715.13. The deal at Best Buy was for 6 months interest free, but after that the interest rate is 18.75% compounded monthly. Daniel plans to pay off the TV in 24 months. What will bet he total interest that Daniel pays on the TV?

A=_____ P=___________ r=_______ n=_________ t=____________? 2,715.13 .1875 12 1.5

(12*1.5).18752715.13(1 )

12A

$3589.15A

Patrick’s car was bought for $7,000. His car depreciates at 8.25% annually. What will his car be worth in 4 years? Depreciation formula

(1 )tA P r

47000(1 .0825)A

$4960.46A

Monica used her credit card on some necessary (or that’s what she thinks) items for her trip down the Dominican Republic 12 months later, she got a bill for $1,200.19. How much did she spend if her bill was compounded weekly at 14.5%?

A=_____ P=___________ r=_______ n=_________ t=______?$1200.19 .145 152

(52*1).1451200.19 (1 )

52P

(52*1).145(1 )

52 (52*1).145

(1 )52

$1038.40P