Precalculus: Compound Interest

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