Mathematics of Personal Finance Take Home Test



MCF3C Compound Interest Assignment

Name _____________________________

1. Martha invested $600 in an account earning 7% simple interest for 10 years. How much interest did Martha earn?

(5)

2. After 48 months, Jillian’s original investment of $4000 had earned her $250 in interest. What rate of simple interest did her investment earn?

(6)

3. Complete the charts and graphs for the following information. (10)

a) $3000 is invested at 10% simple interest for 8 years.

|Year |Start Amount |Interest |Total Amount |

| 0 |3000 |0 |3000 |

|1 |3000 |300 |3300 |

|2 |3300 | | |

|3 | | | |

|4 | | | |

|5 | | | |

|6 | | | |

|7 | | | |

|8 | | | |

b) On the grid above, construct a graph to display the total amount of the investment over 8 years.

c) $3000 is invested at 10% interest compounded annually for 8 years.

|Year |Principal |Interest |Total amount |

|0 |3000 |0 |3000 |

|1 |3000 |300 |3300 |

|2 |3300 | | |

|3 | | | |

|4 | | | |

|5 | | | |

|6 | | | |

|7 | | | |

|8 | | | |

d) On the grid above, construct a graph to display the total amount of the investment over 8 years.

e) Compare you two graphs. What do you notice about the way simple interest grows compared to compound interest?

Use the Compound Interest Formula

3. $4000 is invested at 6% compounded semi-annually for 8 years. How much will it be worth at the end of the term?

(5)

4. Sarah needs $25 000 for a down payment on a house in 2 years. How much does she have to invest today into an account that earns 12% compounded quarterly?

(5)

Use the TVM solver for Problem 5

5. Harold invests $800 at 6.7% compounded monthly. How much will his investment be worth in 10 years?

(5)

PV-

PMT-

FV-

Rate-

Periods-

Solve this page however you like.

6. If the interest rate and compounding frequency remain constant it always take the same amount of time for the principal to double.

a. Use examples to prove this is true. (4)

b. Use the compound interest formula to show why this makes sense. (2)

7. If Bobby invests $300 today at 2.8% compounded quarterly, how long will it take to reach $1000? (5)

-----------------------

y

8

4

8

5400

3400

3800

4200

4600

5000

0

6

3200

4000

4800

2

3600

5200

4400

3000

y

10

4

8

3000

3200

3600

4000

4400

4800

0

6

5000

3800

4600

2

3400

5000

4200

10

y

8

4

8

7000

3600

4400

5200

6000

6800

2

3000

4000

5600

0

3200

6400

4800

6

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