November 30, 2015

(3.6) Finance Math

Objective: To solve simple and compound interest problems.

Why: To understand how money can work for you.

https://www.youtube.com/watch?v=f9zraS8EKw4
 November 30, 2015

Obj: To solve simple and compound interest problems.

Interest Compounded k Times per Year

r kt
A=P 1+
k

Interest Compounded Annually

A = P(1 + r)n

Interest Compounded Continuously

A = Pert
 November 30, 2015

Obj: To solve simple and compound interest problems.

1. Mary has $600 to invest at 8% annual interest

compounded monthly. How long will it take for her
investment to grow to $2400?
 November 30, 2015

Obj: To solve simple and compound interest problems.

2. Sam invests $200 at 7% annual interest

compounded continuously. Find the value of his
investment at the end of each of the years 1, 2, ... , 7.
 November 30, 2015

Obj: To solve simple and compound interest problems.

3. If you have a bank account whose principal = $1000, and your bank compounds
the interest twice a year at an interest rate of 5%, how much money do you
have in your account at the year's end?
 November 30, 2015

Obj: To solve simple and compound interest problems.

4. The first credit card you got charges 12.49% interest to its customers and
compounds that interest monthly. Within one day of getting your first credit
card, you max out the credit limit by spending $1,200.00. If you do not buy
anything else on the card and you do not make any payments, how much money
would you owe the company after 6 months?
 November 30, 2015

Obj: To solve simple and compound interest problems.

5.

How much would need to be deposited into an account earning 4.7%, compounded
quarterly, so that the balance will be $1,000,000 in 20 years?
 November 30, 2015

6. Exit Problem Obj: To solve simple and compound interest problems.

You win the lottery and get $1,000,000. You decide that you want to invest all of
the money in a savings account. However, your bank has two different plans. If
5 years from now, which plan will provide you with more money?

Plan 1
The bank gives you a 6% interest rate and compounds the interest each month.

Plan 2
The bank gives you a 12% interest rate and compounds the interest every 2 months.
 November 30, 2015

Obj: To solve simple and compound interest problems.

HW:

HR: (3.6) Pg.310: 1, 5, 9, 21, 23, 25, 29, 43

 November 30, 2015

Precalculus Name: __________________

You win the lottery and get $1,000,000. You decide that you want to invest all of
the money in a savings account. However, your bank has two different plans. In
5 years from now, which plan will provide you with more money? Show all work!

Plan 1
The bank gives you a 6% interest rate and compounds the interest each month.

Plan 2
The bank gives you a 12% interest rate and compounds the interest every 2 months.
 November 30, 2015

Obj: To solve simple and compound interest problems.

Annual Percentage Yield (APY) the percentage rate
that, compounded annually, would yield the same return
as the given interest rate with the given compounded
period.

Tom invests $2000 with Key Bank at 5.15% annual interest

compounded quarterly. What is the equivalent APY?
 November 30, 2015

Obj: To solve simple and compound interest problems.

annuity: sequence of equal periodic payments

ordinary: deposits are made at the end of each

period at the same time the interest is posted in the
account

Future Value of an annuity, consisting of n equal

periodic payments of R dollars at an interest rate of i
per compounding period (payment interval) is:

n
(1 + i) - 1
FV = R
i
 November 30, 2015

Obj: To solve simple and compound interest problems.

3. At the end of each quarter, Emily makes a $400

payment into the Smithville Financial Fund. If her
investments earn 7.75% annual interest compounded
quarterly, what will be the value of Emily's annuity in
25 yrs?
 November 30, 2015

Obj: To solve simple and compound interest problems.

Present Value of an Annuity consisting of n equal

payments of R dollars earning an interest rate i per
period (payment interval) is:

1 - (1+i)-n
PV = R
i

Cindy purchases a new car for $19,000. What are the

monthly payments for a 3-year loan with a $3000 down
payment if the annual interest rate (APR) is 3.1%
 November 30, 2015

Obj: To solve simple and compound interest problems.

HW:

(HR): (3.6)Pg.310: 13, 17, 19, 49, 53

 November 30, 2015

Obj: To solve simple and compound interest problems.

 November 30, 2015

Obj: To solve simple and compound interest problems.