Compound Interest pp. 208-2105-5SECTIONSECTION

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Section ObjectiveSection ObjectiveFigure out:

• compound interest

• amount

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compound interest (p. 208)

Interest earned not only on the principal in a bank account, but also on the interest earned on the account, or interest on interest.

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Amount = Principal + Interest

Formula 1Formula 1

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Compound Interest = Amount – Original Principal

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Give an example of compound interest. How does it work?

Understanding the Williams Sisters Understanding the Williams Sisters p. 208p. 208

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Jamal Quillet deposited $1,800 in a savings account, which earns 6 percent interest that is compounded quarterly. He made no deposits or withdrawals.

What is the amount in the account at the end of the second quarter?

Example 1Example 1

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Step: Find the amount for each quarter.

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Example 1 Answer (cont.)Example 1 Answer (cont.)

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In Example 1 Jamal Quillet deposited $1,800 in a savings account that earns 6 percent interest compounded quarterly. You determined that the amount in his account at the end of the second quarter was $1,854.41.

What is the compound interest?

Example 2Example 2

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Step: Figure out the compound interest.

Amount – Original Principal

$1,854.41 – $1,800.00 = $54.41

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Alison Strauss deposited $2,500 in a savings account which pays 5¼ percent interest compounded quarterly. She made no deposits or withdrawals.

a. What was the amount in the account at the end of the second quarter?

b. How much is the compound interest?

Practice 1Practice 1

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a. $2,566.06

b. $66.06

Practice 1 AnswerPractice 1 Answer

Compound Interest5-5END OF SECTIONEND OF SECTION