SECTION 4A HIGHLIGHTS
Assignment: Read about the “Three Basic Rules of Algebra” 0n page 223. Do pp. 224 BSC (15-29 odd). Read about The Power of Compound Interest in Section 4A of the text (omit continuous compounding). Do pp. 224-227 RQ(1,6), BSC(35,37-42,43-48,51-54,69,71,74), ITN(86).
In The News #86 Link: * BANKING
INFORMATION SITE
*This site requires a little digging but you can learn a lot as you dig.
Vocabulary: Simple Interest, Annual Percentage Rate (APR), Principal, Compound Interest, Accumulated Balance, Annual Percentage Yield (APY)
Notes:
Simple Interest is interest that is paid only on your
original investment, or principal. The formula to be used for calculating
Simple Interest Earned is as follows:
SIE = P*APR*Y
where SIE = Simple Interest Earned, P = Principal, APR = Annual Percentage Rate
(as a decimal), Y= Years. (* means to multiply in this formula)
If you wish to calculate the Accumulated Balance after Y
years use the following formula:
A = SIE + P = P*APR*Y + P
where A = Accumulated Balance, others same as above.
If you make an investment from which, after some set
period of time, you earn interest and then, after a time equal to that same
initial period of time, earn additional interest on both the initial investment
and the interest earned in the first period of time, you are earning compound
interest. (get it? you earn interest on both the principal and the new interest
you add each period) To calculate the Accumulated balance after Y years
with the interest compounded n times per year use the following formula:
A = P * ( 1 + (APR/n)) ^ (n*Y)
where A = Accumulated Value, P = Principal, APR = Annual Percentage Rate, n =
number of compounding periods per year, Y = Years. (* means to multiply, ^
means raise to the power of )
Activity Worksheet GROWTH THROUGH
COMPOUND INTEREST
Annual Percentage Yield is the actual percentage by which a balance
increases in one year. To calculate the Annual Percentage Yield use the
following formula:
Annual Percentage Yield = Relative increase = (absolute increase/starting
principal)x100%
The following Excel spreadsheet can be used to help with problems in this section:
Skills to be mastered:
1. The calculation of simple interest.
2. The calculation of compound interest with varying interest and periods.
3. The calculation of Annual Yield.