120 2.2 notes PDF

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2.2 notes...

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Section 2.2 _ Compound interest applications Most often when you take out a loan or invest money you earn interest on the original amount (Principal amount) and you earn interest on the interest you have made. Compound Interest formula on the formula sheet: FV = PV (1 + i) n

What is the compounding period per year = m a.)

compounded semi – annually

b.) compounded annually

b.)

compounded monthly

c.) compounded quarterly

c.)

compounded weekly

1) Your rich aunt invests $100,000 into an account earning 4% interest per year compounded every six months. How much money will be in the account at the end of 3 years?

2) How much money must you invest now at 2.5% interest per year compounded monthly in order to have $5000 in three and a half years?

3) Two years ago you invested $3000 in a stock fund. Each year the value of your investment has declined by 10 % yearly. What is your investment worth now? What if this continues for 5 more years what is the investment worth?

To find Time you need to use your calculator – To find the point of intersection. Time it take for a PV to reach the FV. 4) Ralph invests $5000 at 3.28 % interest per year compounded quarterly. How many years would it take for the investment to double?

5) Tina invests $3000 at 4.8 % interest per year compounded monthly. How many years will it take for her investment to be worth $5000?

6.) Determine the amount of money, to the nearest dollar, that I need to invest now at 7% interest compounded monthly, so that I will have $1,000,000 in 35 years when I retire.

7.) If you plan to invest $1500 in an account that pays 3.75% interest compounded monthly. How much interest will you have earned in 20 years. (assuming you left the money alone for those 20 years)

8) Your car was valued at $15,000 when you purchased it 5 years ago. If the car’s value has depreciated by 8 % yearly, what is the current value of your car?...