COMPOUND INTEREST
(PRESENT VALUE)
COMPOUND INTEREST
future value:
 the value of an investment or loan at the end of the term
 A = P(1 + i)n or FV = P(1 + i)n
present value:
 the amount of money that must be invested today in order
to have a specific amount later
COMPOUND INTEREST (present value):
P = A(1 + i)–n
Example 
or
PV =
A
(1 i )n
Matteo wants to invest enough money today to have $3200 for tuition
when he goes to college in two years. Determine the amount of money
Matteo needs to invest today at 6% compounded monthly.
PV =
A=
i=
n=
Example 
Determine the principal that must be invested today in order to grow to
$2000 in 5 years if the investment is compounded annually at 6% /a.
PV =
A=
i=
n=
Unit 5 Lesson 4
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Example 
Determine the amount of money Fred and Wilma have to invest, at 8%
compounded semi-annually, on the day their daughter is born so that
she will have $10 000 when she turns 16 years old.
PV =
A=
i=
n=
Homework: p.439–441 #2, 4–8, 10*, 12**
*HINT: calculate PV for the $2200
**HINT: calculate PV for each amount
Unit 5 Lesson 4
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