Calculating and Comparing Simple and Compound Interest

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Calculating and Comparing Simple and Compound Interest 13.2 Calculating and Comparing Simple and Compound Interest How do you calculate simple and compound interest?

ADDITIONAL EXAMPLE 1 Each year, Monica deposits $200 into her savings that earns simple interest at an annual rate of 3.5%. Make a table to show how the interest grows over three years if she makes no withdrawals.

ADDITIONAL EXAMPLE 2 On each birthday, Eric deposits $200 into his savings that earns interest at a rate of 3% compounded annually. Make a table to show how the interest grows over three years if he makes no withdrawals.

ADDITIONAL EXAMPLE 3 Taylor deposits $150 in each of two savings accounts. Both have an annual interest rate of 4%. No additional deposits or withdrawals are made. One account earns simple interest, and the other account earns interest compounded annually. Which account will earn more interest after 20 years? How much more? the compound interest account; $58.67 more

13.2 LESSON QUIZ 7.13.E For 1–4, assume that no additional deposits or withdrawals are made. 1. Each year on the same day, Kyle deposits $250 into a savings account that earns simple interest at an annual rate of 3.5%. How much interest does the account earn after one year? after 10 years? $8.75; $481.25

2. Eliot deposits $500 into a savings account that earns interest at a rate of 3% compounded annually. What is the closing balance at the end of the first year? the second year? the fifth year? $515; $530.45; $579.63 3. Sandra deposits $400 in a savings account with an annual simple interest rate of 5%. Delia deposits $400 in a savings account with an annual compound interest rate of 5%. How much more interest does Delia’s account earn than Sandra’s after ten years? $51.56 more

4. Rajeev deposits $800 in a savings account earning interest at a rate of 4% compounded annually. How much is in his account after five years? $973.32

How do you calculate simple and compound interest? For simple interest, find the product of the amount, the interest rate (as a decimal), and the time (expressed in years). For compound interest, use a formula and substitute known values to compute. Sample answer: