1
ECS10
10/8
Compound interest
Say you invest $100 and make 7% annually
After one year you have:
$100 + $100*7/100 = $107
You made $7 00
You made $7.00
If you leave it invested, and make another 7%
the next year, you have:
$107 +
$107*7/100 = $114.48
You made $7.49
Compound interest
The more you have the more you make
e
balanc
Doubles every
seven years.
Debt and Payments
Example debt:
Beginning balance $1000
Interest rate 13% annually
Make a payment of $300 per year
After one year you owe:
$1000+ $1000*13/100 = $1130 ($120 in interest)
Then you pay $300, so you owe $1120$300 = $870
The next year, you owe:
$870 +
$870*13/100 = 983.10$ ($113.10 in interest)
Pay another $300, and get down to $683.10
New Assignment
Given a debt amount, interest rate and
monthly payment, figure out how long it takes
to pay off the debt, and how much you end up
paying in interest.
“Compounded monthly”
Instead of computing and adding interest every
year, do it every month.
Use interest rate of (13 / 12)% = 1.0833%
every month
Is 13% compounded monthly better than 13%
compounded annually? Is it exactly the same?
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 Spring '07
 Amenta
 partner, Control key, $7, $7.00

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