Aim: Money Matters – Effective Rate & APR Course: Math Literacy Aim: How does money matter? The lowdown on interest rates. Do Now: nnie deposits $1000 in a local bank at 8 nterest for 1 year. How much does Annie ave in her account after 1 year? nnie deposits $1000 in a local bank at nterest for 1 year compounded quarterly ow much does Annie have in her account fter 1 year?
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Aim: Money Matters – Effective Rate & APR Course: Math Literacy Aim: How does money matter? The lowdown on interest rates. Do Now: Annie deposits $1000.
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When compounding takes place we often would like to know the Effective Rate. For interest rate i per compounding period, a principal of $1 grows to (1 + i)n in n periods.
= $1 1 1the rate of simple interest thatwould realize exactly as much interest over the sa
Suppose that the monthly statement from the fund reports a beginning balance (P) of $7373.93 and a closing balance (A) of $7382.59 for 28 days (n). What is the APY assuming daily compounding?
A credit union offers a certificate of deposit at an annual interest rate of 3%, compounded monthly. Find the effective rate. Round to nearest 100th of a percent.
Annual Percentage Rate (APR) – the rate paid on a loan when that rate is based on the actual amount owed for the length of time that it is owed. It can be found for interest rate r , with N payments by using the formula
The cost of credit!
1969 Truth in Lending Act interest calculated only on the amount you owed at particular time not on original amount
You purchase a refrigerator for $675. You pay 20% down and agree to repay the balance in 12 equal monthly payments. the finance charge on the balance is 9% simple interest.
a) Find the finance chargeb) Estimate the annual percentage rate.
I = Prt
16.6%
2
1
nrAPR
n
675(.20) = 135 – down payment675 – 135 = 540 – amount to be financed