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Chapter 6 Exponential and Logarithmic Functions and Applications Section 6.5

Chapter 6 Exponential and Logarithmic Functions and Applications Section 6.5. Section 6.5 Additional Exponential and Logarithmic Models. Compound Interest and Present Value Continuous Compounding and Present Value. Periodic Compound Interest Formula

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Chapter 6 Exponential and Logarithmic Functions and Applications Section 6.5

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  1. Chapter 6 Exponential and Logarithmic Functions and ApplicationsSection 6.5

  2. Section 6.5Additional Exponential and Logarithmic Models • Compound Interest and Present Value • Continuous Compounding and Present Value

  3. Periodic Compound Interest Formula The accumulated amount, A, after t years in an account with principal P invested at an annual interest rate, r (expressed as a decimal value), compounded n times per year is given by Common compounding periods: semiannually (twice a year), quarterly (four times a year), monthly (12 times a year),or daily (365 times a year).

  4. Zule will invest $10,000 and will not use any part of it for 7 years. She has been presented with the following two options: (1) Investment account paying 2.55% compounded monthly. (2) Investment account paying 5.14% compounded quarterly. a. Which of these options would produce the highest value for the initial investment? Round to the nearest dollar. We will use theperiodic compound interest formula. For option (1), P = 10,000, r = 0.0255, n = 12, and t = 7. For option (2), P = 10,000, r = 0.0514, n = 4, and t = 7. Option (2) will yield the highest value, at $14,298.

  5. b. How long would it take Zule’s $10,000 to grow to $25,000 if she invested it at 5.72% annual interest compounded semiannually? Round to the nearest year. We will use theperiodic compound interest formula with A = 25,000, P = 10,000, r = 0.0572, n = 2, and solve for t.

  6. Present Value Formula The present value, P, of an investment that will produce a future value in an account with annual interest rate, r, compounded n times per year is given by where A = accumulated amount or future value, and t = time in years.

  7. How much money must Zule invest today if she wants to see her money grow to $200,000 in 25 years at 4% annual interest compounded monthly? Round to the nearest dollar. We will use thepresent value formula with A = 200,000, r = 0.04, n = 12, and t = 25. If compounded monthly at 4% for 25 years, the present value for Zule’s investment would be approximately $73,698.

  8. Continuous Compound Interest Formula The accumulated amount, A, after t years in an account with principal P invested at an annual interest rate, r, compounded continuously is given by Present Value Formula The present value, P, of an investment that will produce a future value in an account with annual interest rate, r, compounded continuouslyis given by where A = accumulated amount or future value, and t = time in years.

  9. How much money will Zule have in her account after 7 years if she invests $10,000 at 5.14% compounded continuously? Round to the nearest dollar. We will use the continuous compound interest formula with P = 10,000, r = 0.0514, and t = 7. Determine the amount of money Zule must invest today if she wants to see her money grow to $200,000 in 25 years at 4% interest compounded continuously. Round to the nearest dollar. We will use thepresent value formula with A = 200,000, r = 0.04, and t = 25.

  10. Using your textbook, practice the problems assigned by your instructor to review the concepts from Section 6.5.

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