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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 Page 1 of 2 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 Page 2 of 2