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Compound Interest Tables pp. 214-2135-6SECTIONSECTION
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 2 of 24
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Amount = Original Principal × Amount of $1.00
Formula 1Formula 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 3 of 24
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Compound Interest = Amount – Original Principal
Formula 2Formula 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 4 of 24
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State Bank pays 6 percent interest compounded quarterly on regular savings accounts. You deposited $3,000 for 2 years. You made no deposits or withdrawals.
How much interest did you earn in 2 years?
(Note: Use the Compound table on page 797 of your textbook to solve this problem.)
Example 1Example 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 5 of 24
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Find the total interest periods.
Periods per Year × Number of Years
4 quarters per year × 2 years = 8 periods
Example 1 Answer: Example 1 Answer: Step 1Step 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 6 of 24
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Find the interest rate per period.
Periods per Year × Number of Years
Annual Rate ÷ Number of Periods per Year
6% ÷ 4 = 1.5%
Example 1 Answer: Example 1 Answer: Step 2Step 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 7 of 24
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Find the amount for 8 periods at 1.5 percent per period using the Compound Interest—Amount of $1.00 table on page 797 of your textbook.
It is 1.12649.
Example 1 Answer: Example 1 Answer: Step 3Step 3
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 8 of 24
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Find the amount.
Original Principal × Amount of $1.00
$3,000.00 × 1.12649 = $3,379.47
Example 1 Answer: Example 1 Answer: Step 4Step 4
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 9 of 24
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Find the compound interest.
Amount – Original Principal
$3,379.47 – $3,000.00 = $379.47
Example 1 Answer: Example 1 Answer: Step 5Step 5
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 10 of 24
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Juan Lopez opens an account and deposits $4,379.47. The account pays 6 percent annual interest and compounds quarterly. Six months later he deposits $2,000.
How much will he have in the account in 1½ years if he continues to pay 6 percent interest compounded quarterly?
Example 2Example 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 11 of 24
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Find the total interest periods for first 6 months.
Periods per Year × Number of Years
4 quarters per year × ½ year = 2 periods
Example 2 Answer: Example 2 Answer: Step 1Step 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 12 of 24
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Find the interest rate per period.
Annual Rate ÷ Number of Periods per Year
6% ÷ 4 = 1.5%
Example 2 Answer: Example 2 Answer: Step 2Step 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 13 of 24
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Find the amount of $1.00 for 2 periods at 1.5 percent per period using the Compound Interest—Amount of $1.00 table on page 797.
It is 1.03023.
Example 2 Answer: Example 2 Answer: Step 3Step 3
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 14 of 24
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Find the amount for 6 months.
Original Principal × Amount of $1.00
$4,379.47 × 1.03023 = $4,511.86 (new principal)
Example 2 Answer: Example 2 Answer: Step 4Step 4
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 15 of 24
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Find the amount for 1.5 years.
Periods per Year × Number of Years
4 quarters per year × 1.5 years = 6 periods
Example 2 Answer: Example 2 Answer: Step 5Step 5
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 16 of 24
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Find the amount of $1.00 for 6 periods at 1.5 percent per paid using the Compound Interest—Amount of $1.00 table on page 797.
It is 1.09344.
Example 2 Answer: Example 2 Answer: Step 6Step 6
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 17 of 24
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Find the amount for 1.5 years.
New Principal × Amount of $1.00
($4,511.86 + $2,000.00) × 1.09344 =
$6,511.86 × 1.09344 = $7,120.33
Example 2 Answer: Example 2 Answer: Step 7Step 7
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 18 of 24
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$8,240 invested at 5.75 percent compounded semiannually for 3 years.
No additional deposits or withdrawals.
Find the amount.
Practice 1Practice 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 19 of 24
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$9,767.53
Practice 1 AnswerPractice 1 Answer
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 20 of 24
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$1,900 invested at 6.25 percent compounded semiannually for 5 years.
No additional deposits or withdrawals.
Find the amount.
How much interest did the money earn in 5 years?
Practice 2Practice 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 5-6, Slide 21 of 24
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$1,900 invested at 6.25 percent compounded semiannually for 5 years: $2,584.61
Interest earned in 5 years: $684.61
Practice 2 AnswerPractice 2 Answer
212-213: 3-14 212-213: 3-14
