Math Example--Math of Money--Compound Interest: Example 18

Topic

Math of Money

Description

This example illustrates compound interest for a $1000 investment at a 2.5% interest rate over 10 years with continuous compounding. The formula for continuous compounding is A = Pe^rt. With P = 1000, r = 0.025, and t = 10, the amount is calculated as $1284.03.

Understanding compound interest is crucial for financial literacy. This example demonstrates continuous compounding and its effect on investment growth compared to other frequencies. By exploring various scenarios, students learn how different compounding intervals influence financial outcomes.

Providing multiple examples helps students understand the nuances of compound interest calculations. They can observe patterns and recognize how changes in frequency impact results, which enhances their problem-solving abilities.

Teacher Script: "Today we'll explore continuous compounding on a $1000 investment at a 2.5% rate for 10 years. Notice how this affects your total return compared to other compounding frequencies."

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