Question

Calculator Compound Interest With compound Interest, the interest is added to principal in the calculation of interest in future periods. This addition of interest to the principal is called compoundin This differs from simple interest, in which interest is computed based upon only the principal. The frequency with which interest is compounded per year will dictate many interest computations are required (1.e. annually is once, semi-annually is twice, and quarterly is four times). Imagine that Bolden Co., fearing that you wouldn't take its deal, decides instead to offer you compound interest on the same $19,000 note. How much will Bolden pay you at the end of three years if interest is compounded annually at a rate of 9%? If required, round your answers to the nearest cent Principal Annual Amount of Accumulated Amount at Amount at Interest (Principal at End of Year (Principal at Beginning of Beginning of Year x Beginning of Year + Annual Year Year 9%) Amount of Interest) 1 $1,710 $20,710 $19,000 $20,710 2 3 If you were given the choice to receive more or less compounding periods, which would you choose in order to maximize your monetary situation? More To solve compounding interest interest is added to principal in the calculation of interest in future periods, compounding periods per year APPLY THE CONCEPTS: Present value of a single amount in the future As it is important to know what a current investment will yield at a point in the future, it is equally important to understand what investment would be required today in order to yield a required future return. The following timeline displays what present investment is required in order to yield $8,000 three years from now, assuming < Previous Check My Work

Answer 1

Year	Principal amount at beginning of Year	Annual amount of interest (Principal at beginning of year*9%)	Accumulated amount at the end of year (Principal at beginning of year+Annual amount of interest)
1.	$19000	$1710	$20710
2.	$20710	(20710*9%)= 1863.9	(20710+1863.9)= 22573.9
3.	$22573.9	(22573.9*9%)= 2031.65	(22573.9+2031.65)= 24605.55

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