Scribd
Upload
148 views

Compound Interest

Compound interest is calculated using the formula A = P(1 + r/n)^(nt), where A is the future value, P is the principal, r is the annual interest rate, t is time in years, and n is the number of compounding periods per year. The document provides examples of common compounding periods and 10 practice problems calculating future values using compound interest with varying principal amounts, interest rates, compounding periods, and time horizons.

Uploaded by

mirkazim
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
148 views

Compound Interest

Compound interest is calculated using the formula A = P(1 + r/n)^(nt), where A is the future value, P is the principal, r is the annual interest rate, t is time in years, and n is the number of compounding periods per year. The document provides examples of common compounding periods and 10 practice problems calculating future values using compound interest with varying principal amounts, interest rates, compounding periods, and time horizons.

Uploaded by

mirkazim
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Compound Interest

To calculate compound interest uses the formula below. In the formula,


A represents the amount in the account

A represents the amount of money after a certain amount of time


P represents the principle or the amount of money you start with
r represents the interest rate and is always represented as a
decimal
t represents the amount of time in years
n is the number of times interest is compounded in one year, for
example:
The table below gives n for commonly used compound periods.
Determining n for Common Compound Periods
Compound Period

Annually

Semiannually

Quarterly

Monthly

12

Weely

52

Daily

360

Basic Compound Interest Applications


1. If you have a bank account whose principal = $1000, and your bank
compounds the interest twice a year at an interest rate of 5%, how
much money do you have in your account at the year's end?

2. If you start a bank account with $10,000 and your bank compounds
the interest quarterly at an interest rate of 8%, how much money do
you have at the years end ? (assume that you do not add or
withdraw any money from the account)

3. The first credit card that you got charges 12.49 % interest to its
customers and compounds that interest monthly. Within one day of
getting your first credit card, you max out the credit limit by spending
$1,200.00 . If you do not buy anything else on the card and you do
not make any payments, how much money would you owe the
company after 6 months?

4. Find the compound amount for $9100 at 8% compounded quarterly for 4 years.

5. Karen has $1000 that she invests in an account that pays 3.5%
interest compounded quarterly. How much money does Karen have at
the end of 5 years?

6. William wants to have a total of $4000 in two years so that he can put
a hot tub on his deck. He finds an account that pays 5% interest
compounded monthly. How much should William put into this account
so that hell have $4000 at the end of two years?

7. Suppose William, from our last example, only has $3500 to invest but
still wants $4000 for a hot tub. He finds a bank offering 5.25%
interest compounded quarterly. How long will he have to leave his
money in the account to have $4000?

8. Kelly plans to put her graduation money into an account and leave it
there for 4 years while she goes to college. She receives $750 in
graduation money that she puts it into an account that earns 4.25%
interest compounded semi-annually. How much will be in Kellys
account at the end of four years?

9. ABC Bank is offering to double your money! They say that if you
invest with them at 6% interest compounded quarterly they will
double your money. If you invest $1500 in the account, how long will
it take to double your money?

10.

Calculate the future value of $3,000 invested at 7% for 5 years.

You might also like