Math Example--Math of Money--Compound Interest: Example 19

Topic

Math of Money

Description

This example shows how to calculate compound interest for a $1000 investment with a 5% annual interest rate over 10 years, compounded annually. The formula used is A = P(1 + r/n)^nt. Given P = 1000, r = 0.05, n = 1, and t = 10, the calculation yields $1628.89.

Understanding compound interest is essential for financial literacy. This example demonstrates annual 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 calculate compound interest using annual compounding on a $1000 investment at a 5% rate for 10 years. Observe how this impacts 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.