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Warm-Up

Factor each expression:

x2 - x - 20

x2 - 9x + 20

x2 + x - 20

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2-5 Compound Interest Formula

Objective: To make computations using the compound interest formula.

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Compound Interest Formula -

B = P(1 + r/n)nt

where….

B = ending balance

P = Principal or original balance

r = interest rate expressed as a decimal

n = number of times interest is compounded annually

t = time in number of years

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Example 1:

Marie deposits $1,650 for 3 years at 1% interest, compounded daily. What is her ending balance.

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For you to Do:

Nancy deposits $1200 into an account that pays 1.7% interest, compounded monthly. What is her ending balance after 1 year. Round to the nearest cent.

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APR vs APY

To compute simple interest we used APR (annual percentage rate). Most banks advertise the annual percentage yield or APY since it is higher for accounts that are compounded more often than once per year.

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Example 2:

Sharon deposits $8000 in a 1-year CD at 2% interest, compounded daily. What is Sharon’s annual percentage yield (APY) to the nearest hundredth of a percent?

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Homework

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p.100(2,3,4,7,8)