Compound Interest

The compound interest formula is:

B = p(1 + r)^t

What does the B represent?

• The amount of interest earned.

• The amount of time that has passed.

• The balance representing the total amount of money after a certain amount of time.

• The amount required to invest.

In some investment accounts interest is computed on interest that has been earned in previous years. What is this method of computing interest called?

• compound interest

• double interest

• simple interest

• not enough information

In the compound interest formula, the time, t, has to be in _____________

• years

• months

• days

• seconds

"Annually" means how many times a year?

• 4

• 2

• 1

• 6

In the compound interest formula, how does the rate have to be expressed?

• percent

• negative integers

• positive integers

• decimal

Change 6.75% to a decimal.

• 67.5
• .675
• 675
• .0675

Steve deposited $5,000 in a savings account that pays 4% interest compounded annually. Which equation could be used to find the value of the account after 3 years?

• B = 5,000(1 + 4)³

• B = 5,000(1 + 0.04)³

• B = 5,000(1 + 0.4) x 3

• B = 5,000(0.04)³

If $1,000 is invested at 16% interest, compounded annually, for five years, what is the ending balance? (Use the formula B = p(1 + r)^t)

• $1,225,54

• $2,100.34

• $22,255.40

• $225.54

Kara borrowed $21,000 for 5 years at an annual compound interest rate of 7.5% to buy a car. What is the total amount she will repay the bank for the auto loan? (Use the formula B = p(1 + r)^t)

• $30,148.22

• $344,674.80

• $9148.22

• $27,165

A bank is offering 7% annual compound interest on a savings account. If you deposit $1,500, how much interest will you earn in 3 years? (Use the formula B = p(1 + r)^t)

• $1837.56

• $337.56

• $30000

• $31500