Exercise

Example:
Wanda borrowed $3,000 from a bank at an interest rate of 12% per year for a 2-year
period. How much interest does she have to pay the bank at the end of 2 years?

Example:
Raymond bought a car for $40, 000. He took a $20,000 loan from a bank at an
interest rate of 15% per year for a 3-year period. What is the total amount
(interest and loan) that he would have to pay the bank at the end of 3 years?

Solution:
Example:
Raymond bought a car for $40, 000. He took a $20,000 loan from a bank at an
interest rate of 15% per year for a 3-year period. What is the total amount
(interest and loan) that he would have to pay the bank at the end of 3 years?

Solution:

How To Solve Interest Problems Using The Simple Interest Formula?

Interest represents a change in money.

If you have a savings account, the interest will increase your balance based
upon the interest rate paid by the bank.

If you have a loan, the interest will increase the amount you owe based upon
the interest rate charged by the bank.

Examples:

1. If you invest $3,500 in savings account that pays 4% simple interest, how
much interest will you earn after 3 years? What ill the new balance be?
 2. You borrow $6000 from a loan shark. If you will owe $7200 in 18
months, what would be the simple interest rate?

How To Use The Formula For Simple Interest To Find The Principal, The Rate Or
The Time?

Examples:

1. An investment earned $11.25 interest after 9 months. The rate was 5%.
What was the principal?

2. $2000 was invested for 3 years. It earned $204 in interest. What was the
rate?

3. A loan of $1200 had $36 in interest. The rate was 6%. What was the
length of the loan?
How To Solve Simple Interest Problems, Compound Interest Problems,
Continuously Compounded Interest Problems, And Determining The Effective
Rate Of Return?

Examples Of Simple Interest Problems:

1. Joseph buys a new home using an interest only loan where he pays only
the interest on the value of the home each month. The home is valued at
$200,000 and Joesph pays 5% interest per year on the home. How much
is his monthly interest payment?

2. Anthony puts $10000 dollars into a savings account that pays interest
every month at a rate of 1.8% per year. How much money does Anthony
have after one month? If he leaves his original investment and the first
month of interest in the account, how much will he have after the second
month?

Examples Of Compound Interest Problems:

1. Matt is saving for a new car. He invests $5000 into an account that pays
3% interest a year and is compound monthly. How much will he have after
5 years?
 2. Matt is planning to buy a car in three years. He wants to invest $5000
now and hopes to have $6000 to spend on the car when he buys it. What
kind of interest rate would he need if his investment is compounded
monthly?

Examples Of Continuously Compound Interest Problems:

1. Lindsey invests $1000 into an account with 4% per year continuously

compounded interest. How much will she have after 10 years? How long
will it take for her investment to double?

2. Tony and Matt both incest $5000 in an account that receives 3% interest
annually for 10 years. Tony invests in an account that is compounded
monthly. Matt invests in an account that is compounded continuously.
Who made the better investment?

Example Of Effective Rate Of Return:

1. If $2500 is invested at 5% compounded monthly, what is the effective

rate of return. What is the effective rate of return if this investment is
compounded semiannually?