PRACTICE PROBLEMS ON COMPOUND INTEREST

Problem 1 :

a) What will an investment of $3000 at 10% p.a. Compound interest amount to after 3 years?

b) What part of this is interest?

Solution

Problem 2 :

How much compound interest is earned by investing $20,000 for 4 years at 12% p.a.?

Solution

Problem 3 :

$5000 is invested for 2 years at 10% p.a. What will this investment amount to if the interest is calculated as :

a) Simple interest

b) Compound interest?

Solution

Problem 4 :

a) What will an investment of $30,000 at 10% p.a. Compound interest amount to after 4 years?

b) What part of this is interest?

Solution

Problem 5 :

How much compound interest is earned by investing €80,000 at 9% p.a. over a 3 year period?

Solution

Problem 6 :

$6000 is invested for 2 years at 15% p.a. What will this investment amount to if the interest is calculated as :

a) Simple interest

b) Compound interest?

Solution

Problem 1 :

You invest $2,000 into an account that pays 4% interest and is compounded monthly. 

a. Write a model that represents this situation.

b. Using your model from part a, how much money will be in the account after 5 years? After 20 years?

Solution

Problem 2 :

Samantha just won an AAFES sweepstake and has been given $1,000,000!!! The only catch is she is not allowed to spend any of it for 15 years, but she is allowed to invest it. She found certificate of Deposit account that will pay her 5.25% annual interest compounded daily.

a. Write a model that represents this situation.

b. Using the model to help, calculate how much interest she gained during those 15 years.

Solution

Problem 3 :

You deposit $500 in an account that pays 8% annual interest compounded monthly. How much will you have after 15 years?

Solution

Problem 4 :

You deposit $575 in an account that pays 4% annual interest compounded continuously. How much will you have after 5 years?

Solution

Problem 5 :

You deposit $3,000 in an account that pays 3.28% annual interest. Find the balance after 5 years if the interest is compounded semi-annually. How much would you have if the interest was compounded daily for five years?

Solution

Problem 6 :

Jasmine invests $2,658 in a retirement account with a fixed annual interest rate of 9% compounded continuously. What will the account balance be after 15 years?

Solution

Problem 7 :

Maria invests $6,154 in a savings account with a fixed annual interest rate of 8% compounded continuously. What will the account balance be after 10 years?

Solution

Problem 8 :

Ryan invests a sum of money in a savings account with a fixed annual interest rate of 4.31% compounded 12 times per year. After 10 years, the balance reaches $12,855.94. What was the amount of the initial investment?

Solution

Problem 9 :

Ndiba invests a sum of money in a savings account with a fixed annual interest rate of 4.61% compounded 3 times per year. After 6 years, the balance reaches $5,485.85. What was the amount of the initial investment?

Solution

Problem 7 :

Calculate :

a) The simple interest earned on $2000 at 5% p.a. for 3 years.

b) Find the compound interest earned on $2000 at 5% p.a. for 3 years.

Solution

Problem 8 :

If $50,000 is invested at 9% p.a. compound interest, use a table to find:

a) The final amount after 2 years.

b) How much interest was earned in the 2 year period.

Solution

Problem 9 :

Determine the interest earned for the following investments 

a. $4000 at 8% p.a. compound interest for 2 years.

b. $12000 at 6% p.a. compound interest for 3 years.

c. $500 at 3% p.a. compound interest for 3 years.

Solution

Problem 4 :

Tong loaned Jody $50 for a month. He charged 5% simple interest for the month. How much did Jody have to pay Tong?

Solution

Problem 5 :

Jessica’s grandparents gave her $2000 for college to put in a savings account until she starts college in four years. Her grandparents agreed to pay her an additional 7.5% simple interest on the $2000 for every year.

How much extra money will her grandparents give her at the end of four years?

Solution

Problem 6 :

Mai put $4250 in the bank at 4.4% interest compounded annually. How much was in her account after 7 years?

Solution

Problem 7 :

What is the difference in the amount of money in the bank after five years if $2500 is invested at 3.2% interest compounded annually or at 2.9% interest compounded annually?

Solution

Problem 8 :

Ronna was listening to her parents talking about what a good deal compounded interest was for a retirement account. She wondered how much money she would have if she invested $2000 at age 20 at 2.8% annual interest compounded quarterly (four times each year) and left it until she reached age 65. Determine what the value of the $2000 would become.

Solution