4.2 Compound Interest

Day 2

Compound Interest A = P(1 + )nt

A = amount of $ accumulated

P = initial amount of $ invested (principle)

r = rate of interest (be sure to change to a decimal before plugging into the equation)

n = # of times interest is compounded per year

t = # of years

n

r

Example 1

Karen Estes just received an inheiritance of $10,000 and plans to place it in a savings account that pays 5% interest compounded quarterly, to help her son go to college in 3 years. How much will she have saved in 3 years?

Example 3

A principle of $25,000 is invested in an account paying an annual percentage rate of 5%. Find the amount in the account after 2 years if compounded

Semiannually

Quarterly

Monthly

Example 4

Brian, Eric, Manny and Melissa would like to go to Disneyland in 3 years. Their total cost should be about $4,500. If each invests $1,000 in a savings account paying 5.5% interest, and it is compounded semiannually, will they have enough money in 3 years to take their trip?