Math Example--Math of Money--Compound Interest: Example 10

Topic

Math of Money

Description

This example calculates compound interest for a $1000 investment at a 5% interest rate over 5 years, compounded monthly. Using the formula A = P(1 + r/n)^nt, where P = 1000, r = 0.05, n = 12, and t = 5, the final amount is $1283.61.

Compound interest is a key concept in financial mathematics that shows how investments grow over time. This example highlights monthly compounding, demonstrating the impact of more frequent compounding on returns. Understanding these differences helps students apply compound interest in real-world financial scenarios.

Multiple examples are essential for students to fully grasp compound interest. They provide opportunities to compare outcomes and understand how changes in compounding frequency affect results, enhancing analytical skills.

Teacher Script: "Let's calculate compound interest with monthly compounding on a $1000 investment at a 5% rate for 5 years. Notice how this affects your total return compared to less frequent compounding."

For a complete collection of math examples related to Compound Interest click on this link: Math Examples: Compound Interest Collection.