Page 2: Advanced Applications and Problem Solving
This page demonstrates practical applications through various financial scenarios and calculations involving compound interest.
Example: A $15,000 down payment goal calculation shows:
- Monthly compounding requires $12,285.05 initial deposit
- Continuous compounding requires $12,220.97 initial deposit
Highlight: When converting between nominal and effective rates with continuous compounding:
- A 6% nominal rate yields approximately 6.18% effective rate
- A 6% effective rate requires approximately 5.83% nominal rate
Definition: The relationship between nominal and effective rates demonstrates how compounding frequency affects actual returns on investments.
