SIMPLE AND COMPOUND INTEREST

Compute the amount of interest earned in the following simple interest problem. A deposit of $100 at 8% for 20 years = _____.

$160.00

Explanation for compound interest:

If the interest is compounded semiannually, look up on the chart half the rate and twice the years. If the interest is compounded quarterly, look up one-fourth the rate and four times the years.

$5,000 would grow in ten years at 6% compounded quarterly?

Look up $1.00 at 1.5% for forty years. According to the chart, $1.00 at 1.5% for forty years is 1.8140184. Multiplied by $5,000, the answer is $9,070.09.

compound interest

interest figured on the amount of money in the savings account plus the amount of interest already earned

simple interest

interest figured only on the amount of money in the savings account

Using the formula in model 1, choose the correct answers for the new balance and the amount of interest earned in the following compound interest problem. $650 at 8% for 14 years, compounded annually. 1. Total Amount = 2. Interest Amount =

1. $1,909.18 2. $1,259.18

Compute the amount of interest earned in the following simple interest problem. A deposit of $800 at 3.5% for 7 years = _____.

$196.00

Compute the amount of interest earned in the following simple interest problem. A deposit of $10,000 at 9.5% for 90 days = _____.

$237.50

Compute the amount of interest earned in the following simple interest problem. A deposit of $1,600 at 6% for 180 days = _____.

$48.00

Using the formula in model 1, choose the correct answers for the new balance and amount of interest earned in the following compound interest problem. $1,050 at 6%, for 25 years, compounded annually. 1. Total Amount = 2. Interest Amount =

1. $4,506.46 2. $3,456.46

demand deposit

checking account

interest

money paid by banks on money in savings accounts

Model 1 formula for compound interest? Example: $4,000 is compounded at 6% annually over seven years.

P(1 + r) ^t = $4,000 * 1.06 7 P(1 + r) ^t = $4,000 * 1.5036 P(1 + r) ^t = $6,014.52

Formula To find out how much interest was added in dollars? Example: $4,000 is compounded at 6% annually over seven years

1. Subtract the original investment from the new balance. $6,014.52 - $4,000 = $2,014.52 *The $4,000 earned $2,014.52 in interest over seven years!

Model 1 Formula for simple interest? Example: simple interest earned on a deposit of $3,000 at 6% for 5 years

$3,000 x 0.06 x 5 = $900

Using the formula in model 1, choose the correct answers for the total amount and amount of interest earned in the following compound interest problem. $5,000 at 3% for 7.0 years, compounded annually. 1. Total Amount = 2. Interest Amount =

1. $6,149. 37 2. $ 1,149.37

Model 2 Formula for simple interest? Example: simple interest earned on a deposit of $4,000 at 5% for 120 days

1. Convert 120 days to a fractional part of a year. 120/365= 1/3 2. Write the equation I = $4,000 x 0.05 x 1/3 ( or 0.33) 3. Solve the equation. I=66.67

$5,000 would grow in ten years at 6% compounded semiannually?

Look up $1.00 at 3% for twenty years and multiply by $5,000. According to the chart $1.00 at 3% for twenty years is 1.8061112. When you multiply that number by $5,000 you get $9,030.56.