simple interest and compound interest

simple interest and compound interest

Simple interest formula

• I=prt

• I is the interest

• p is the principal, money you begin with

• r is the annual rate of interest (percent)

• t is the time in years

If you are ever given months instead of years you will need to divide your months by 12 to get your t value

3 months would = $\frac{3}{12}=0.25$  

Multiple Choice

what would your t value be for 6 months

• 6

• 0.25

• 0.5

• 0.6

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what is 5.25% in decimal form

Multiple Choice

what is the correct set up for your equation if want to find the interest on $300 borrowed for 3 years at 4%

• I=3(300)(0.4)

• I =300(0.04)3

• I=4(300)3

• 300=3(I)0.04

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find the simple interest fo $300 borrowed for 3 years at an annual rate of 4%

your equation would be I=300(0.04)3

• I= 12(3)

• I=$36

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find the simple interest of a $220 loan at a 5% annual rate for 4 years

notice that the simple interest formula only tells you the interest paid for loan.

With the compound interest formula your outcome is your total balance of your principal and interest.

Counpound interest formula

•  $B=p\left(1+r\right)^t$  

• B is the balance: principal and interest

• p is the principal

• r is the annual interst rate

• t is time in years

With the compound interest formula you will need to raise (1+r) to the power of t and you will need to use the caret key on the calculator

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in your calculator type 5^4 and write your answer below

You deposit $5000 in a bank account that pays 3.75% interest compounded annually. What is the balance after 9 years.

• use the formula $B=p\left(1+r\right)^t$  and replace the variables with the given value

•  $B=5000\left(1+0.0375\right)^9$  

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you deposit $5000 in a bank account that pays 3.75% interest compounded annually. what is the balance after 9 years.

you answer to the question should have been $6,964.07

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you deposit $3000 in a bank account that pays 4.25% interest compounded annually. What is your balance after 12 years?

answer from the question before should be $4,934.49

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Your parents start a college fund for you when you are born and put $2500 in an account that pays 5.5% interest compounded annually. What is your balance when you turn 18?

your answer to the last question should be $6553.67

now continue to practice with the rest of the questions

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Karl used his credit card to buy a 90-inch HD flat-screen TV for $2,600. The credit card company charges 28% compound interest per year. If Karl made no payments for 2 years, how much would he owe the credit card company?

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Audrey deposited $2,800 in a

savings account that pays 2.65% interest compounded annually. What is the total

value of the account after 7 years?

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Travis

invests $25,000 in a savings account that pays 2.75% simple interest. How much interest does he earn each year?

Multiple Choice

David

invests $10,000 in a savings account that pays 3.5% simple interest. If David

makes no withdrawals or deposits to the account, how much will be in the

account after 7 years.

• $2,450

• $11,750

• $12,450

• Not here

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Heather

invested $8,000 in a 4-year Certificate of Deposit (CD) that pays 4.1% interest

compounded annually. What is the value of the CD at the end

of the 4 years?

Multiple Choice

8)  Jose wants to save money for a house and finds two accounts that pay 3% in interest.  He wants to invest $3000.  He has 2 options to invest his money. Option A is a simple interest account with a time period of 10 years. Option B is a compound interest account with a time period of 12 years.  What would be his account balance in Option B?

• $4,277.28
• $900
• $1,277.28
• $1,080

Multiple Choice

7)  Rosalinda wants to save money for college.  She wants to invest $1000 with the bank that will maximize her savings.  She finds out that both Washington Mutual and Compass Bank offer accounts that pay at a rate of 3%.  However, Washington Mutual offers a simple interest account with a maximum time period of 4 years while Compass Bank offers a compound interest account with a maximum time period of 3 years.  What is the difference in the amount of interest each account pays?

• $27.28
• $92.72
• $120       
• $972.72

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2) Jacob invested $400 into a savings account that earned simple interest at a rate of 1.25%. He plans to keep it in the account for the next 10 years. How much interest would he gain in the account after 10 years?

Multiple Choice

1) Gabby invested $100 into a savings account that earned simple interest at a rate of 1.5%.  She plans to keep the money in the account for the next ten years.  How much would she have in the account at the end of ten years?

• $15
• $115       
• $116.05
• $1,500

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Find the simple interest:

Principal: $6,000

Interest Rate: 5%

Time: 6 months

Multiple Choice

Find the compound interest:
Principal: $1735
Interest Rate: 0.8%
Time: 1 year

• $1,388
• $138.80
• $13.88
• None of the answers are correct.

Multiple Choice

Smithville Bank is offering each of it's customers a record 3.4% interest on new savings account. If Mr. Thomas opens an account with $1,500, how much interest will he earn in 3 years?

• $15,300
• $1,530
• $153
• The answer is not shown

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Ann puts $300 in a bank account earning 4% interest. How much will she earn in interest in 1 year?

Multiple Choice

I = Prt where r represents the rate.  Rates must be converted into ____ before multiplying.

• fractions
• mixed numbers
• decimals
• integers

Multiple Choice

What is the formula for simple interest?

• A=P(1+r)^t
• I=Prt
• I=P(1+r)t
• A=Prt

Multiple Choice

If you are calculating the simple interest and you are given the time in months.  How can you find the time in years?

• divide 12 by the months
• multiply 12 times the months
• divide the months by 12
• change the months to a decimal

Multiple Choice

The simple interest formula is I=Prt.  The P represents the principle.  The principle is ___________________. 

• the amount of money borrowed or deposited
• the amount taxed
• the percent interest for this year
• the amount the bank owes you for being a customer at their bank

Poll

how do you fill with simple and compound interest

• easy peasy lemon squeezy

• I get simple interest, but not compound interest

• I get compound interest, but not simple interest

• I don't get any of it