Name: __________________________ Period: ______ Date: _________________

Compound Interest

Compound Interest
So far in this unit you have seen recursion used with real world problems involving population
change. Now you are going to explore how recursion plays a role in compound interest.

What is it?
Compound interest​ is interest that is applied to previous interest as well as to the original
amount of money borrowed or invested.
The original amount of money borrowed or invested is called the ​principal​.
The rate of change in investment situations is referred to as the ​interest rate​.
We will refer to the length of time in each step as the “​step size​”.

What are some situations you might see compound interest in?
● Loans (for school, buying a house, buying a car, etc.)
● Savings account

How does compound interest work?

Suppose you open up a savings account at the bank. You have to deposit money in order to
open an account so you decide to start the account with $250. Each year the bank pays you 5%
of the money in your account.

Identify the following:

Principal:
Interest rate:
Step size:

Write a ​NOW-NEXT​ rule that represents the situation described above.

Using that rule, figure out how much money you would have if you did not touch your money in
the account for 5 years.

Rewrite your NOW-NEXT rule into subscript notation and function notation.