Which rate is better if you’re a saver?

7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly

Find equivalent annually compounded rate of interest and then compare

Second function of Number 2 on Calculator:

ICONV

3 Variables: NOM = stated annual rate (nominal rate) C/Y = compounding periods per year EFF = effective annually compounded rate

of interest (EAR)

Say your credit card balance remains at $2,000 every month. (You make payments but new purchases and interest charges keep it at exactly $2,000 each month.)

Interest rate = 22.9% compounded monthly How is monthly interest calculated? Annual

interest? Why is true cost to borrower greater than

22.9%?

Borrow $100,000 for 15 years. Repay in equal monthly payments (part principal, part interest).

Compare interest rate of 8% compounded annually to 8% compounded monthly.

Under which rate do you pay more interest?

Savers love frequent compounding of interest

Borrowers don’t like it, but they don’t have any choice!

Deposit $400 monthly at the end of each month into a 401K. Deposits earn an average of 5%, compounded monthly.

How much is in the account after 45 years?

How much of that did you contribute yourself?

Suppose you switch the account balance to a safer investment after 45 years (upon retirement) that pays only 3% interest, compounded monthly.

What equal amount could you withdraw, each month, from your account over a 20 year period to have a zero balance in the account after the last withdrawal?