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PP Section 5.6

PP Section 5.6 - CompoundInterest Terminology Interest is...

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Compound Interest

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The rate of interest , expressed as a percent, is the amount charged for the use of the principal for a given period of time, usually on a yearly (per annum) basis. Terminology Interest is the money paid for the use of money. The total amount borrowed is called the principal .
The amount A after t years due to a principal P invested at an annual interest rate r compounded n times per year is A P r n nt = + 1 Compound Interest

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Example Suppose your bank pays 4% interest per annum. If \$500 is deposited, how much will you have after 3 years if interest is compounded annually? A P r n nt = + 1 = + \$500 . ( ) 1 0 04 1 1 3 = \$562.43 After three years, there will be \$562.43
Example Suppose your bank pays 4% interest per annum. If \$500 is deposited, how much will you have after 3 years if interest is compounded monthly? A P r n nt = + 1 = + \$500 .

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PP Section 5.6 - CompoundInterest Terminology Interest is...

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