Financial Planning & Money Management Business Math Compound Interest Compound Interest sum of the original principal

l and its compound interest. Interest period the time (daily, monthly, quarterly, semiannually, or annually) Calculating Interest semiannually: divide the interest rate by 2 Calculating Interest quarterly: divide the interest rate by 4 Example $1,000 deposited into an account that pays 6% annually for 2 years. 1,000 * .06 *1 (first year) = $60 1,000 + 60 = 1,060 1,060 * .06 * 1 (second year) = 63.60 1,060 + 63.60 = $1,123.60 Now compound it quarterly (every 3 months) 1st: 6% divided by 4 quarters in a year = 1.5% per quarter 1,000 * .015 = 15.00 (1st quarter interest) 1,000 + 15 = 1,015 1,015 * .015 = 15.23 (2nd quarter interest) 1,015 + 15.23 = 1,030.23 1,030.23 * .015 = 15.45 (3rd quarter interest) 1,030.23 + 15.45 = 1,045.68 1,045.68 * .015 = 15.69 (4th quarter interest) 1,045.68 + 15.69 = 1,061.37 (at end of 1st year) 1,061.37 * On Your Own: (year 2)

On Your Own Calculate the compound amount and interest at the end of a 2-year period. The original principal is #3,000 at 7 % compounded annually. 1. Interest for first year 2. Interest for second year 3. Compound amount 4. Compound interest ____________________ ____________________ ____________________ ____________________

Calculate the interest, compounded annually. Principal $8,100 Rate 8% Time (years) 2 Compounded Interest

$2,900

7%

Calculate the interest & total amount, compounded quarterly. Principal $5,000 Rate 8% Time (years) 2 Compounded Amount Compounded Interest

$1,00

8%