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  • 04.1 Compounding at Different Periods

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    The document discusses compounding interest at different periods, including daily, monthly, annually, and effective annual rates. It provides examples of calculating interest compounded daily or annually on a loan or certificate of deposit. For a 5-year CD offering 1.60% APY, it shows how to find the equivalent APR compounded daily and the total balance after 5 years for a $10,000 deposit.

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    The document discusses compounding interest at different periods, including daily, monthly, annually, and effective annual rates. It provides examples of calculating interest compounded daily or annually on a loan or certificate of deposit. For a 5-year CD offering 1.60% APY, it shows how to find the equivalent APR compounded daily and the total balance after 5 years for a $10,000 deposit.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    8 views7 pages

    04.1 Compounding at Different Periods

    Uploaded by

    jade zimmer
    The document discusses compounding interest at different periods, including daily, monthly, annually, and effective annual rates. It provides examples of calculating interest compounded daily or annually on a loan or certificate of deposit. For a 5-year CD offering 1.60% APY, it shows how to find the equivalent APR compounded daily and the total balance after 5 years for a $10,000 deposit.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 7

    Chapter 4

    COMPOUNDING AT
    DIFFERENT PERIODS

    IE 305 – Engineering Economic Analysis


    Cameron MacKenzie

    IE 305 – ENGINEERING ECONOMIC ANALYSIS 1


    Annual percentage rate (APR)

    IE 305 – ENGINEERING ECONOMIC ANALYSIS 2


    Example

    The nominal interest rate is 17.7%, compounded daily. If I owe P and I let P sit for 365 days,
    how much will owe?

    IE 305 – ENGINEERING ECONOMIC ANALYSIS 3


    Effective annual interest rate

    IE 305 – ENGINEERING ECONOMIC ANALYSIS 4


    IE 305 – ENGINEERING ECONOMIC ANALYSIS 5
    Example 4.1

    Ally Bank offers a 5-year certificate (CD) at 1.60% APY (annual percentage yield). Find the APR for the
    five-year CD assuming interest is compounded daily. Find the total balance for a deposit amount of
    $10,000 at the end of five years.

    IE 305 – ENGINEERING ECONOMIC ANALYSIS 6


    Calculate using daily interest rate or annual effective rate

    • Making use of daily interest rate

    • Making use of annual effective rate

    IE 305 – ENGINEERING ECONOMIC ANALYSIS 7

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