Section 5-1 Simple and Compound Interest
Homework: 1 - 37 odd, 45 - 51 odd, skip #29
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.:. Accumulated Amount = sum of principal and interest after t years.
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1. How many days will it take for a sum of$1500 to earn $25 interest ifit is deposited in a
bank paying simple interest at the rate of 5%/year? (Use a 365-day year.)
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2. Find the accumulated amount at the end of 8 months on a $1200 bank deposit paying
simple interest at a rate of 7% per year.
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·:. Compound Interest - Interest that is periodically added to the principal and then earns interest. In
other words, interest comQ!.!tedon previously earned interest.
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.:. Example
Find the accumulated amount after 3 years if$1000 is invested at 8% per year compounded (a)
semiannually, (b) quarterly, and (c) monthly.
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.:. Effective Rate of Interest - The annual rate of interest that, when compounded annually, will
yield the same accumulated amount as the nominal rate compounded m times a year .
•:. Example
Find the effective rate of interest corresponding to a nominal rate of 8% per year
compounded (a) semiannually, (b) quarterly, and (c) monthly.
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.:. Example
Anthony invested a sum of money 5 years ago in a savings account that has since paid interest at
the rate of 4%/year compounded quarterly. His investment is now worth $22,289.22. How much
did he originally invest?
.:. Summary
o ~i.mP1e Interest
o
Compound Interest