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Warm-Up

You open a savings account that has a 1.5% annual interest rate, compounded monthly. If they deposit $200 every month, how much will be in the account after 5 years?

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2-8 Present Value of Investments

Objective: To calculate the present value of a single and periodic deposit investment

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Present Value of a Single Deposit Investment

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Example 1:

Mr. and Mrs. Johnson know that in 6 years, their daughter Ann will attend State College. She will need about $20,000 for the first year’s tuition. How much should the Johnsons deposit into an account that yields 1.5% interest, compounded annually, in order to have that amount?

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Example 2:

Ritika just graduated from college. She wants $100,000 in her savings account after 10 years. How much must she deposit in that account now at a 0.95% interest rate, compounded daily, in order to meet that goal?

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Present Value of a Periodic Deposit Investment

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Example 3:

Nick wants to install central air conditioning in his home in 3 years. He estimates the total cost to be $15,000. How much must he deposit monthly into an account that pays 1.4% interest, compounded monthly, in order to have enough money?

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Homework:

P.119 (2-7)