Math Example--Math of Money--Compound Interest: Example 9

Topic

Math of Money

Description

This example illustrates calculating compound interest for a $1000 investment at a 5% interest rate, compounded quarterly over 5 years. The formula A = P(1 + r/n)^nt is used with P = 1000, r = 0.05, n = 4, and t = 5, resulting in an amount of $1282.04.

Understanding compound interest is key to financial literacy, showing how investments can grow exponentially. This example demonstrates quarterly compounding and its influence on returns. By examining different compounding intervals, students gain insight into the effects on financial growth.

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 quarterly compounding on a $1000 investment at a 5% rate for 5 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.