Compound Interest

Activity Overview

This activity involves exploring the formula for compound interest as a function of the initial deposit, interest rate, and the number of pay periods per year.

Objectives

Students will interpret the variables in the formula for compound interest.
Students will use the formula for compound interest and understand the effects of changes in the interest rate and the number of compounding periods.
Students will understand the relationship between compound interest and continuous compounding

Vocabulary

compound interest
interest rate

pay periods
initial deposit

continuous compounding

About the Lesson

This lesson involves exploring the formula for compound interest as a function of the initial deposit, interest rate, and the number of pay periods per year. As a result, students will:

Learn the relationship between the interest rate and the total amount in the account.
Learn the relationship between the number of pay periods and the total amount in the account.
Discover the limiting condition as the number of pay periods increases without bound

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