Compound Interest Practice 1. Cecilia places $4,500 into a savings account that has an annual interest rate of 6%. The interest is compounded semiannually. How much interest will Cecilia earn in 4 years? What will the new balance of her account be? a) What is the interest rate for each period? b) How many periods are there in 4 years? Interest This c) Total amount of interest earned: d) New balance in the account after 4 years: 2. Beverly places $2,750 into a savings account that has an annual interest rate of 8%. The interest is compounded monthly. How much interest will Beverly earn in 6 months? What will the new balance of her account be? b. How many periods are there in 6 months? Interest This d. New balance in the account after 6 months:
3. Armando places $8,000 into a savings account that has an annual interest rate of 10%. The interest is compounded daily. How much interest will Armando earn in one week? What will the new balance of his account be? b. How many periods are there in one week? Interest This d. New balance in the account after one week: 4. Nathaniel places $10,000 into a savings account that has an annual interest rate of 2%. The interest is compounded weekly. How much interest will Nathaniel earn in 4 weeks? What will the new balance of his account be? b. How many periods are there in four weeks? Interest This d. New balance in the account after four weeks:
Compound Interest Practice 2 1. Carlotta puts $10,000 into a savings account that has an annual interest rate of 6%. The interest is compounded monthly. How much interest will Carlotta earn in 5 months? What will the new balance of Carlotta s account be? b. How many periods are there in 5 months? Interest This d. New balance in the account after five months: 2. Amber puts $14,000 into a savings account that has an annual interest rate of 10%. The interest is compounded weekly. How much interest will Amber earn in 4 weeks? What will the new balance of Amber s account be? b. How many periods are there in four weeks? c. Total amount of interest earned (Note: you will have to make your own chart): d. New balance in the account after six months:
3. Jaime places $6,500 into a savings account that has an annual interest rate of 4%. The interest is compounded monthly. How much interest will Jaime earn in 6 months? What will the new balance of Jaime s account be? b. How many periods are there in six months? d. New balance in the account after six months: 4. Arthur places $2,000 into a savings account that has an annual interest rate of 8%. The interest is compounded quarterly. How much interest will Arthur earn in 2 years? What will the new balance of Arthur s account be? b. How many periods are there in 2 years? d. New balance in the account after 2 years: Critical Thinking Question. Explain the process for what you would do to solve this problem. Melanie places $4,000 into a savings account that has an annual interest rate of 12%. The interest is compounded daily. What will the new balance of Melanie s account be after one year?
Practice with Percentages When using percentages, often you will have to multiply a number by a percentage and then add your product to your starting amount this is the same as multiplying by the percentage (as a decimal) plus 1 in the first place. 1) Find 5% of 40. Then add your answer to 40. Answer: 2) Find 12% of 250. Then add your answer to 250. Answer: Example: Find 6% of 12. Then add your answer to 12. 12. 06 = 0.72 now 12 + 0.72 = 12.72 12 1.06 = 12.72 3) Sales Tax The sales tax on an item is 6.5%. Find how much sales tax you will have to pay on an item that costs $20.00. Then add the tax to the original price to find the total cost of the item. Total Cost: 4) Using the 6.5% sales tax mentioned above, find the amount of sales tax you will have to pay on a $75 purchase. Then add the tax to the original price to find the total cost of the purchase. Total Cost: 5) A savings account earns 3% interest each month. Find the amount of interest earned on an account with $600 for one month. Then add the interest to the original amount to find the new balance. 6) A savings account earns 5% interest each month. Find the amount of interest earned on an account with $800 for one month. Then find the new balance in the account. 7) A savings account earns 6% interest each quarter. If an account starts with $900 in it, how much will be in the account after one quarter? 8) A savings account earns 1% interest each week. If the account starts with $12,000 in it, how much will be in the account after one week? 9) A savings account earns 12% interest each year. Find the interest rate for one month. Then, if the account starts with $15,000 in it, how much will be in the account after one month?
10) A savings account earns 24% interest each year. Find the interest rate for one month. Then, if the account starts with $10,000 in it, how much will be in the account after one month? Now, interest is earned on the new balance in the account. Find the amount in the account after another month. Interest is earned on the balance after that for a third month. Find the amount in the account after this month. For a forth month, interest is earned on the new balance of the account. Find the amount in the account after this fourth month. 11) In the previous problem, find the total amount of interest earned over the four months. Total Interest: 12) A savings account earns 8% interest each year. Find the interest rate for one quarter. Then, if the account starts with $12,500 in it, how much will be in the account after one quarter? Now, interest is earned on the new balance in the account. Find the amount in the account after another quarter. Interest is earned on that balance for a third quarter. Find the amount in the account after the third quarter. Interest is earned on that balance for a fourth quarter. Find the amount in the account after the fourth quarter. 13) In the previous problem, find the total amount of interest earned over the period of a year (four quarters). Total Interest: Critical Thinking Question. Explain how the process of calculating a new percentage this way will be useful for finding compound interest.