Compound Interest - Chandler Unified School District



Compound Interest

Compound interest means:

The formula for compound interest is:

Total Amount = Principal (1 + [pic]) # yearly compounds ● # years

Review the table to see how compound interest adds up at a rate of 6% per year or 1.5% per quarter:

|Period |Principal (P) |Interest (I) |New Total (P + I) |

|1st quarter |$3000.00 | | |

|2nd quarter | | | |

|3rd quarter | | | |

|4th quarter | | | |

Is there a difference if you used simple interest of 6% per year? Which is better?

Fill out the chart for the second year.

|Period |Principal (P) |Interest (I) |New Total (P + I) |

|1st quarter | | | |

|2nd quarter | | | |

|3rd quarter | | | |

|4th quarter | | | |

Using the formula for compound interest answer the following questions:

A is the total amount

P is the principal

r is the yearly interest rate

n is the number of compounding periods per year

t is the number of years

1. How much would they have earned after five years with a starting amount at $3,000 and compounded quarterly at 1.5%?

2. 25 years?

3. An amount of $1500.00 is deposited in a bank paying an annual interest rate of 4.3%, compounded quarterly. Find the balance after 6 years.

4. An amount of $4500.00 is deposited in a bank paying an annual interest rate of 4.3%, compounded semi-annually. Find the balance after 4 years.

5. 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 he’ll have $4000 at the end of two years?

6. 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 Kelly’s account at the end of four years?

7. 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.

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