8.6 Problem Solving: Compound Interests

Simple interest: I=prt I = interest p = principal: amount you start with r = rate of interest t= time in years

If you invest $3,000 at 5% for one year, how much will you make for the year? I = prt = 3000  0.05  1 = 150 You made $150 for the year.

A = p(1+r) t A = balancep = principal r = ratet = time in years Compound interest formula:

Find the total amount in your account if you start with $750 at 7.5% interest for 2.5 years. A = p(1+r) t = 750( ) 2.5 = 750(1.075) 2.5 (use a calculator here!) = $898.63

How much should you invest at 7% to have $200 after 5 years? A = p(1+r) t (Plug in what you know.) 200 = p(1.07) 5 ( get p alone, then use a calculator.) = p

If you put $100 in the bank at 4% interest and leave it until you are 60, how much money will you have? A = p(1+r)t = 100(1.04) 46 (This assumes you are currently 14) =

What about a mutual fund that pays 10% interest? A = p(1+r)t = 100(1.10) 46 =