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Source: College Mathematics
, Rockswold G., Bennett J., and Briggs W.
C:/CLASES_COLEGIO/2007/NOTAS/0102/
02//27
Math 1332  College Mathematics
Chapter 4A Notes
The Power of Compounding
We are now familiar with the compound interest and continuous compounding interest formulas
(sections 53).
Compound Interest:
A = P (1 + r / n)
n t
Continuous Compounding Interest:
A = Pe
r t
We will look at these exponential models in more detail now, in addition to simple interest, and
represent compound interest in a general form
.
Definitions
Principal
– (in financial formulas) is the balance upon which interest is paid.
Simple Interest
– interest paid only on the original principal, not on any interest added at later dates.
Compound Interest
– interest paid both on the original principal and on all interest that has been
added to the original principal.
Annual Percentage Rate (APR)
– Interest paid once a year without taking into account the
compounding of interest within that year.
Annual Percentage Yield (APY)
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 Fall '11
 MariselaA.Martinez
 Formulas, Annual Percentage Rate

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