Quiz: Interest and the Cost of Credit

Which type of interest is earned on both the principal plus any previous interest earned?

• Simple interest

• Compound interest

• Both simple and compound

• None of the above

Which of the following best describes interest as it relates to credit?

• Additional money earned for having an account

• The limit for which an individual may use credit

• The charge for the privilege of borrowing money

• The total amount a borrower must repay a lender for a loan

Derrick wants to calculate the interest he would earn from investing $400 into an account that earns 5.5% annual compound interest for 60 months. Which formula should he use?

Roxanne has $3,000 that she plans to invest into an account that earns 7% simple interest. Assuming she makes no additional deposits or withdrawals, how much interest will Roxanne earn after 15 years?

• $3,150

• $6,150

• $150

• $5,277.09

Salvador inherited $20,000 and he plans to invest it into a savings account that earns 6% interest compounded annually. Assuming he makes no additional deposits or withdrawals, find the account balance after 10 years.

• $55,816.95

• $15,816.95

• $35,816.95

• $32,000

Cynthia has earned $1,000 and wants to put it in a savings account that earns 5% simple interest. Assuming she makes no additional deposits or withdrawals, which represents the total value of Cynthia’s account after 48 months?

• $2,400

• $1,200

• $200

• $3,400

Jim and Bill each invest $15,000 into savings accounts that earn 3.5% interest. Jim’s account earns simple interest and Bill’s account earns compound interest. After 25 years, who will earn more interest and how much more will he earn?

• Jim will earn $13,125 more in interest.

• Bill will earn $22,323.67 more in interest.

• Jim will earn $35,448.67 more in interest.

• Bill will earn $7,323.67 more in interest.

8. Emma and Paul each invest $2,000 into accounts that earn 6% interest. If Emma’s account earns simple interest and Paul’s account earns compound interest, which is the value of each person’s account after 8 years?

Calculate Heather’s total cost of repayment.

• $1,000.84

• $1,779.84

• $2,000.84

• $2,500.84

Trey decides to consolidate his debt and qualifies for a personal loan of $10,000 to help pay off his current credit. He qualifies for an interest rate of 4.2% and is choosing between a term of 5 or 10 years. Which term will result in the lowest total repayment, and how much lower will the repayment be?

• The 5-year term would be $1,128.80 lower.

• The 5-year term would be $1,186.80 lower.

• The 10-year term would be $2,315.60 lower.

• The 10-year term would be $1,186.80 lower.