Teacher resources and professional development across the curriculum

Teacher professional development and classroom resources across the curriculum

Monthly Update sign up
Mailing List signup
Teaching Math Home   Sitemap
Session Home Page
ConnectionsSession 06 Overviewtab aTab btab ctab dtab eReference
Part B

Exploring Connections
  Introduction | Calculating Interest | A More Efficient Method | Interest Calculator | Reviewing Connections | Your Journal


Before we begin, it's useful to review how compound interest is defined. Unlike simple interest, which is only paid on the principal, compound interest is paid on both the principal and the previously accrued interest. The compounding interval is the number of times per year that compound interest is calculated and applied.

First, use pencil and paper, a calculator, or a spreadsheet to answer the following question: If $2,000 is deposited at 3% interest, what will be the value of a savings account each year for 4 years, assuming no withdrawals or deposits and an annual compounding of interest? Remember, compound interested is paid on both the principal and the accrued interest.

End of Year Account Value
0 $2000
1 $?
2 $?
3 $?
4 $?

After you have worked on the problem, select "Show Answer" to see our response.

Show Answer
Sample Answer:
For the first year, the total value is the principal + interest, or $2,000 + (.03 • $2,000) = $2,060. To find the total value for the second year, we add the interest, .03, to the first-year total. The equation might look like this:

$2,000 + (.03 • $2,000) + .03($2,000 + [.03 • $2,000])

This gives us $2,121.80. If we follow the same procedure for the remaining years, we would get the results above:

Do you see how the values were determined?

This solution method provides an answer for each year, but it quickly becomes tedious.


Next  Simplifying the calculation

    Teaching Math Home | Grades 9-12 | Connections | Site Map | © |  

© Annenberg Foundation 2017. All rights reserved. Legal Policy