MAT 143: MML 2

How much must be deposited today into the following account in order to have $65,000 in 7 years for a down payment on a house? An account with annual compounding and an APR of 4% assuming no other deposits are made.

$49,394.66

Use the compound interest formula to determine the accumulated balance after the stated period. $7000 invested at an APR of 2.5% for 24 years.

A=12,661.08

Use the compound interest formula to determine the accumulated balance after the stated period. $5000 invested at an APR of 9% for 2 years. If interest is compounded annually, what is the amount of money after 2 years?

A=P(1+APR)^Y A=5000(1+0.09)^2 A=5000(1.09)^2 A=5940.5

Use the compound interest formula to determine the accumulated balance after the stated period. $22,000 invested at an APR of 6.4% with quarterly compounding for 34 years.

A= $190,531.58

What is the difference between simple interest and compound interest? Why do you end up with more money with compound interest?

Simple interest is interest paid only on the original investment whereas compound interest paid both on the original investment and on all interest that has been added to the original investment. Since compound interest is calculated based on a larger amount than simple interest, it results in a larger amount of money over time.

Calculate the amount of money you'll have at the end of the indicated time period. You invest $2000 in an account that pays simple interest of 4% for 20 years.

The amount of money you'll have at the end of 20 years is $3600.

Decide if the following statement makes sense (or is clearly true) or does not make sense ( or is clearly false) : Bank A was offering simple interest at 3.5% per year, which was clearly a better deal that the 3.5% compound interest rate at Bank B.

The statement does not make sense, because the compound interest pays more than the simple interest.

Decide if the following statement makes sense (or is clearly true) or does not make sense (or is clearly false). My bank paid an annual interest rate (APR) of 3.0% but at the end of the year my account balance had grown by 3.1%.

This makes sense, because the annual interest rate (APR) does not always match the annual percentage yield (APY).