8.4 Compound Interest

interest

Compound interest is interest computed on the original principal as well as on any accumulated ____________.

quarterly

If compound interest is paid four times per year, the compounding period is 3 months and the interest is compounded _____________.

semiannually

If compound interest is paid twice per year, the compounding period is 6 months and the interest is compounded __________.

once

If interest is compounded ____________ a year, the formula A=P(1+r/n)^nt becomes A=P(1+r)^t.

effective annual yield

If you are selecting the best investment from two or more investments, the best choice is the account with the greatest _____________, which is the simple interest rate that produces the same amount of money at the end of one year as when the account is subjected to compound interest at a stated rate.

present value

In the ___________formula P = A/(1 + r/n)^nt the variable P represents the amount that needs to be invested now in order to have A dollars accumulated in t years in an account that pays rate r compounded n times per year.

compound interest

The formula A=P(1+r/n)^nt gives the amount of money, A, in an account after t years at rate r subject to_______________ paid n times per year.

true

True or False: According to the Rule of 72, an investment with an effective annual yield of 12% can double in six years.

false

True or False: At a given annual interest rate, your money grows faster as the compounding period becomes longer.

True

True or False: Formulas for compound interest show that a dollar invested today is worth more than a dollar invested in the future.

true

True or False: Formulas for compound interest show that if you make the decision to postpone certain purchases and save the money instead, small amounts of money can be turned into substantial sums over a period of years.

continuous compounding

When the number of compounding periods in a year increases without bound, this is known as ____________.