Compound Interest

Module 5 Topic 4
Compound Interest

Determine the total value of each investment given the principal, interest rate,
and time. Use I = Prt for simple interest.

1. Principal: $1800

Simple Interest Rate: 2.5%
Time: 20 Years

2. Principal: $650

Simple Interest Rate: 5%
Time: 12 Years

3. Principal: $2830

Compound Interest Rate: 3%
Time: 15 Years

4. Principal: $6000

Compound Interest Rate: 4%
Time: 5 Years

Lesson 1: Terms of Financial Endearment

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LEARNING GOALS

• Calculate compound

interest.

• Compare investment

earnings from compound
interest accounts.

• Explain how small amounts

of money invested
regularly grow over time.

KEY TERMS

• terms of an investment
• simple interest
• compound interest

Lesson 1: Terms of Financial Endearment

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Kelly credit card limit is $8000 and has a quarterly compound interest rate of
17.8%. How much interest does she earn if she sends the entire $8000 and
have not made any payments on it in 5 years?

Lesson 1: Terms of Financial Endearment

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James deposits $715 into two high yield savings accounts.

Account 1 earns 3.82% annual simple interest
Account 2 earns 3.82% interest compounded annually.

He did not make any additional withdrawals and deposits for 2 years. What
is the difference between how much interest has earned between the two
accounts?

Lesson 1: Terms of Financial Endearment

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Laura deposit $5000 into a vikings account which earns 6% interest
compounded annually. How much money will be in the account in
ten years?

Lesson 1: Terms of Financial Endearment

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How much does Ray have to deposit today in order to have $5000
in 5 years if interest is 8.5% compounded annually?

Lesson 1: Terms of Financial Endearment

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Lillian deposited $6000 into a savings account which earns 7.12%
interest compounded monthly. How much money will be in the
account in ten years?

Lesson 1: Terms of Financial Endearment

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1. Lyle and Tom are each buying houses just outside of Austin. Lyle has

excellent credit, earning him the lowest possible interest rate. Tom has a
lower credit score—enough to prevent him from qualifying for the best
loan terms.

Lesson 1: Terms of Financial Endearment

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a. Describe the similarities and differences in their loans.

b. How much more money will Tom pay per month?

c. How much more money will Tom pay over the course of a year?

d. How much more money will Tom pay over 30 years because of

the higher interest rate?

Lesson 1: Terms of Financial Endearment

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A good credit score can help you get the best possible interest rate available.
But, interest rates can also vary, depending on the lender and the length of
the loan. Shopping around for the best loan terms could save you thousands
of dollars.

2. Maya is buying a new car. She is considering two different loan options.

Lesson 1: Terms of Financial Endearment

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a. Describe the similarities and differences in the loans.

b. How much more money will Maya pay per month for the

Longhorn Bank loan?

c. Determine the total amount Maya will pay if she chooses the

Longhorn Bank loan.

Lesson 1: Terms of Financial Endearment

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d. Determine the total amount Maya will pay if she

chooses the EZ cash loan.

e. How much money will Maya save by choosing the loan

with the shortest time?

Lesson 1: Terms of Financial Endearment

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● Calculate the total investment value using simple or compound interest for

each given principal, rate, and time.

● Choose the letter of the correct response and write it next to the problem.
● All responses may not be used, and you may use a response more than once.

Lesson 1: Terms of Financial Endearment

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