Today's Plan ­ Monday, May 9, 2011
­ Word Wall
­ Recall Interest: Simple vs. Compound
Note
­ Practice
Today's Learning Goals
By the end of class today students will:
­ Understand the difference between the Simple and Compounding Interest
formulas for calculating a future value
­ Use the formulas to find future values
** Interest Quiz: Thursday **
1
Word Wall
From the list of words at the start of chapter 7 (pg 405)
Choose one word/phrase to illustrate.
Complete word wall entries contain:
1. The word/phrase
2. The definition (found in the chapter or the back of the book)
3. An illustration/calculation to demonstrate the meaning
This is for a bonus mark on Thursday's quiz
Another option: write all definitions and submit for bonus
2
Compound Interest: A Review
Simple Interest vs. Compound Interest
I = Prt
A = P(1+i)n
I = amount of interest
P = principal
r = annual rate
t = time in years
A = total amount
P = principal
i = interest rate per compounding period
n = total number of compounding periods
­ interest is totaled
and paid at the end
­ interest is added in at every
compounding period
­ total amount grows much faster
­ graph is exponential
3
Compounding Periods
Rate: is usually given as an annual rate
Time: is usually given in years, if it isn't then change to years
Compounding: Means: To find i: annually 1 time a year use interest rate use # of years semi­annually 2 times a year rate / 2
years x 2 quarterly 4 times a year rate / 4
years x 4
monthly 12 times a year rate / 12 years x 12 bi­monthly 6 times a year years x 6 weekly 52 times a year rate / 52 years x 52 bi­weekly 26 times a year rate / 26
years x 26 daily 365 times a year rate / 365 years x 365 rate / 6 To find n: 4
Future Value: NPin
­ we use this acronym to stand for finding the future value of the investment/loan
N = # of compounding periods (ex. quarterly, N=4)
P = starting amount (principal)
i = interest rate per compounding period
n = total # of compounding periods
A = final amount
5
ex. Joel gets $1000 for graduation and wants to invest it for 5 years. He finds an investment option with an annual interest rate of 3.5% if he leaves the money locked in for 5 years. How much will he have after the investment is up?
6
Practice:
Pg 406 #1,2,3
7