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Compound Interest

SECTION. 5-5. pp. 208-210. Compound Interest. Figure out: compound interest amount. Section Objective. Key Words to Know. compound interest (p. 208) Interest earned not only on the principal in a bank account, but also on the interest earned on the account, or interest on interest.

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Compound Interest

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  1. SECTION 5-5 pp. 208-210 Compound Interest

  2. Figure out: • compound interest • amount Section Objective

  3. Key Words to Know compound interest (p. 208) Interest earned not only on the principal in a bank account, but also on the interest earned on the account, or interest on interest.

  4. Formula 1 Amount = Principal + Interest

  5. Formula 2 Compound Interest = Amount – Original Principal

  6. Understanding the Williams Sisters p. 208 Give an example of compound interest. How does it work?

  7. Example 1 Jamal Quillet deposited $1,800 in a savings account, which earns 6 percent interest that is compounded quarterly. He made no deposits or withdrawals. What is the amount in the account at the end of the second quarter?

  8. Example 1 Answer Step: Find the amount for each quarter.

  9. Example 1 Answer (cont.)

  10. Example 2 In Example 1 Jamal Quillet deposited $1,800 in a savings account that earns 6 percent interest compounded quarterly. You determined that the amount in his account at the end of the second quarter was $1,854.41. What is the compound interest?

  11. Example 2 Answer Step: Figure out the compound interest. Amount – Original Principal $1,854.41 – $1,800.00 = $54.41

  12. Practice 1 Alison Strauss deposited $2,500 in a savings account which pays 5¼ percent interest compounded quarterly. She made no deposits or withdrawals. a. What was the amount in the account at the end of the second quarter? b. How much is the compound interest?

  13. Practice 1 Answer a. $2,566.06 b. $66.06

  14. END OF SECTION 5-5 Compound Interest

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