Exponentials and Compound Interest Exam

Front

What is the equation for 6.5% decay with an initial value of 1,000?

Back

y = 1000(0.935)^x

Front

What is the ending account balance for a principal of $5000 at an interest rate of 3.75% compounded monthly over 25 years?

Back

$12,749.30

Front

What is the equation for a 7% growth rate with an initial value of 300?

Back

y = 300(1.07)^x

Front

Which account pays more over one year: 3% interest compounded daily or 3.5% interest compounded monthly?

Back

Wachovia

Front

In an exponential function, what does the 'a' represent?

Back

Initial value

Front

Define compound interest.

Back

Interest calculated on the initial principal and also on the accumulated interest from previous periods.

Front

What is the formula for compound interest?

Back

A = P(1 + r/n)^(nt) where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

What is the difference between exponential growth and exponential decay?

Back

Exponential growth increases over time, while exponential decay decreases over time.

Front

How do you calculate the effective annual rate (EAR) from a nominal interest rate?

Back

EAR = (1 + r/n)^(n) - 1 where r is the nominal rate and n is the number of compounding periods.

Front

What is the initial value in the context of exponential functions?

Back

The starting amount before any growth or decay occurs.