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Compound interest ppt
- 1. Compound Interest It is the amount earned for one year calculated multiplying the Principal by the interest Rate. Interest is computed on the principal and also the accumulated interest.
- 2. • Ella and Thelma each invest 10,000 for two years, but under different schemes. Ella’s earns 2% of 10,000 the first year, which is 200, then another 200 the second year. Thelma earns 2% of 10,000 the first year, which is 200, same as Ella’s. But during the second year, she earns 2% of 10,000 and 2% of the 200 also. 1.How much does Ella and Thelma have to their respective account after 2 years? 2. What is the difference? Answer: Ella- 10,400 Thelma- 10,404
- 3. • Many savings account pay compound interest. In this case, the interest is added to the account at regular intervals, and the sum becomes the new basis for computing interest. • Maturity Value (future)compound interest 𝐹 = 𝑃 1 + 𝑟 𝑡 P= Principal F= Maturity(Future) value at the end of the term R=Interest Rate T=term/time in years
- 4. The Following table shows the amount at the end of each year if Principal is invested at an annual interest rate r compounded annually.P=100,000 and r=5% Year(t) Principal=P Rate=r compounded annually Principal=100,000 Rate=5% Compounded annually 1 𝑃 1 + 𝑟 = 𝑃(1 + 𝑟) 105,000 2 𝑃 1 + 𝑟 1 + 𝑟 = 𝑃 1 + 𝑟 2 110,250 3 𝑃 1 + 𝑟 2 1 + 𝑟 = 𝑃 1 + 𝑟 3 121,550.63 4 𝑃 1 + 𝑟 3 1 + 𝑟 = 𝑃 1 + 𝑟 4 127,628.16 Show Solution on the Board
- 5. • Compound Interest » 𝐼𝑐 = F − 𝑃 • Example: • Find the maturity value and the compound interest if 10,000 is compounded annually at an investment rate of 2% in 5years. a. Maturity value b. Compound interest Answer: 73, 872.77 23, 872.00
- 6. • Present Value (P)compound interest P= 𝐹 1+𝑟 𝑡 P= Principal F= Maturity(Future) value at the end of the term R=Interest Rate T=term/time in years Example: What is the present value of 50,000 due in 7 years if money is worth 10% compounded annually? Answer: 25,657.91
- 7. 1. Find the maturity value and interest if 50,000 is invested at 5% compound annually for 8years. a. Maturity value b. Compound interest 2. How much money should a student place in a time deposit in a bank that pays 1.1% compounded annually so that he will have 200,000 after 6 years? 3. Complete the table Christian deposited 5,000 in a bank that pays 2% compounded annually.
- 8. • Quiz 2 1. Suppose your father deposited in your bank account 10,000 at annual interest rate of 0.5% compounded yearly when you graduate from kindergarten and did not get the amount until you finish Grade 12. How much will you have in your bank account after 12 years? 2. A saving account in a bank yields 0.25 % compound interest annually, Accumulated(Find the future value)25,000 for 4 years in this saving account. 3. In a certain bank, Angel invested 8,000 in a time deposit that pays 0.5% compound interest in a year. How much will be her money after 6 years? How much interest will she gain? Complete the table: