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Compound Interest Practice

Last updated almost 4 years ago

10 Nsɛmmisa

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Joe deposits $14000 in an account earning 2% interest for 20 years.

Let's compare how the different forms of interest change the amount that Joe could earn.

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Here is the formula for compound interest:

A = Account balance after interest is earned

P = Principal (starting amount)

r = interest rate (as a decimal)

n = compounding factor (number of times per year the interest is calculated)

t = time in years

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1.

Your 2 year investment of $5,300 earns 2.9% and is compounded annually. What will your total return be?

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2.

You invested $100 at 8.2% which is compounded annually for 7 years. How much will your $100 be worth in 7 years?

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3.

Your investment of $18,100 at 13.6% compounded quarterly for 7½ years will be worth how much?

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4.

What would his final balance be if Joe earned simple interest?

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5.

How much would Joe earn if the interest was compounded annually?

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6.

How much would Joe earn if the interest was compounded monthly?

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7.

How much would Joe earn if the interest was compounded daily?

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8.

How does the compounding factor affect the amount of interest that Joe earns?

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9.

If we kept increasing the compounding factor do you think that Joe's earnings would keep increasing or would we hit a limit?

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10.

BONUS: How much would Joe earn if the interest was compounded every second?