12. This is called compound
interest. The interest builds
on itself. You pay interest on
the interest.
13. There is a formula to answer the
example more quickly.
A = p (1 + r/n) nt
A = the final amount (principal plus interest)
p = the principal
r = rate in decimal form
n = the number of times interest will be paid
in a year
t = time in years
14. Example
A = p (1 + r/n) nt
p = 1000
r = .08
t =5
n=1
(1)(5)
A = 1000(1 + .08/1)
A = $1469.32
15. example 2
How much is owed if $1000 is borrowed
for 2 year at 6% compounded semi-
annually.
p = 1000
r = .06
t=2
n=2
A = 1000(1 + .06/2) 2(2)
A = $1125.51
16. Daily = once a day = 365 times per year
Weekly = once a week = 52 times per year
Monthly = once a month = 12 times per year
Annually = once a year = 1 times per year
Semi-annually = every 6 months = 2 times per
year
Quarterly = every 3 months = 4 times per year