A REVIEW OF LOGARITHMS

Many students in high school and in college have a difficult time with logarithms. In many cases,
they memorize the rules without fully understanding them, and they sometimes even manage to
squeak by a course. Why waste their time on these archaic entities; they are never going to see them
again. Wrong! Just when the student breathes a sigh of relief to be done with logarithms, they
encounter them again in another course. They are now in trouble because the second encounter with
logarithms is at a more sophisticated level. Without an understanding of the basics, the student is
doomed to blindly stumble through and fail the course. You have our sympathy and you have our
solution. We at S.O.S. Math want you to succeed. We have prepared a review of logarithms for you
with examples and problems. You can start at the beginning or jump in at any place.
Since logarithms are exponents, we will review exponential functions before we review logarithms
and logarithmic functions. Before we review exponential functions, we will present a brief history
of logarithms and a brief discussion of the functions.
History of Logarithms:
Logarithms were invented independently by John Napier, a Scotsman, and by Joost Burgi, a Swiss.
The logarithms which they invented differed from each other and from the common and natural
logarithms now in use. Napier's logarithms were published in 1614; Burgi's logarithms were
published in 1620. The objective of both men was to simplify mathematical calculations. Napier's
approach was algebraic and Burgi's approach was geometric. Neither men had a concept of a
logarithmic base. Napier defined logarithms as a ratio of two distances in a geometric form, as
opposed to the current definition of logarithms as exponents. The possibility of defining logarithms
as exponents was recognized by John Wallis in 1685 and by Johann Bernoulli in 1694.
The invention of the common system of logarithms is due to the combined effort of Napier and
Henry Briggs in 1624. Natural logarithms first arose as more or less accidental variations of
Napier's original logarithms. Their real significance was not recognized until later. The earliest
natural logarithms occur in 1618.
Logarithms are useful in many fields from finance to astronomy.
Shortcuts
Multiplication is a shortcut for addition. Recall that means 5 + 5+ 5. Exponents are a shortcut
for multiplication. Recall that means . Logarithm is a shortcut for exponents.
Function
Before we review exponential and logarithmic functions, let's review the definition of a function
and the graph of a function. A function is just a rule. The rule links one number to a second number
in an orderly and specific manner. All the points on the graph of a function are made up of two
parts: (a number, and the function value at that number). For example, the number of hours worked
in a week could be the first number, and the salary for the week could be the function value. If an
hourly salary is $7.00, then the rule would be 7 times the number of hours worked.
You could identify a point on the graph of a function as (x,y) or (x, f(x)). You may have only one
function value for each x number.
If the points (2, 3), (4, 5), (10, 11), and (25, 26) are located on the graph of a function, you could
easily figure out a corresponding rule. To get the function value, you just add 1 to the first number.
The rule is f(x) = x + 1.

The points (3, 8) and (3, 18) could not be points on the graph of a function because there are two
different function values for the same x value.
To review exponential rules click on Exponential Rules.
EXPONENTIAL FUNCTIONS
Definition of Exponential Function
The exponential function f with base a is denoted by , where , and x is any real
number. The function value will be positive because a positive base raised to any power is positive.
This means that the graph of the exponential function will be located in quadrants I and
II.
For example, if the base is 2 and x = 4, the function value f(4) will equal 16. A corresponding point
on the graph of would be (4, 16).

Definition of Logarithmic Function

For x >0, a>0 , and , we have

Since x > 0, the graph of the above function will be in quadrants I and IV.
Comments on Logarithmic Functions
• The exponential equation could be written in terms of a logarithmic equation as
.

• The exponential equation can be written as the logarithmic equation

• Since logarithms are nothing more than exponents, you can use the rules of exponents with
logarithms.
• Logarithmic functions are the inverse of exponential functions. For example if (4, 16) is a
point on the graph of an exponential function, then (16, 4) would be the corresponding point
on the graph of the inverse logarithmic function.

• The two most common logarithms are called common logarithms and natural logarithms.
 Common logarithms have a base of 10, and natural logarithms have a base of e.
If you are interested in reviewing any of the following topics, click the appropriate item:
• The properties of logarithms along with examples and problems, click on Properties
• The graphs of logarithms, with examples and problems, click on Graphs of
Logarithms
• Change of base with respect to logarithms with examples and problems, click on
Change of base
• The three rules of logarithms, with examples and problems, click on Rules of
Logarithms
• Solving exponential and logarithms equations with examples and problems, click on
Solving Equations
• Solving word problems involving exponential and logarithms functions with examples
and problems, click on Solving Word Problems

PROPERTIES OF LOGARITHMS

Property 1: because .

Example 1: In the equation , the base is 14 and the exponent is 0. Remember that a
logarithm is an exponent, and the corresponding logarithmic equation is where
the 0 is the exponent.

Example 2: In the equation , the base is and the exponent is 0. Remember that a

logarithm is an exponent, and the corresponding logarithmic equation is .

Example 3: Use the exponential equation to write a logarithmic equation. The base x
is greater than 0 and the exponent is 0. The corresponding logarithmic equation is
.

Property 2: because .

Example 4: In the equation , the base is 3, the exponent is 1, and the answer is 3.
Remember that a logarithm is an exponent, and the corresponding logarithmic equation is
.

Example 5: In the equation , the base is 87, the exponent is 1, and the answer is
87. Remember that a logarithm is an exponent, and the corresponding logarithmic equation is
.

Example 6: Use the exponential equation to write a logarithmic equation. If the base
p is greater than 0, then .
Property 3: because .

Example 7: Since you know that , you can write the logarithmic equation with base
3 as .

Example 8: Since you know that , you can write the logarithmic equation with
base 13 as .

Example 9: Use the exponential equation to write a logarithmic equation with base
4. You can convert the exponential equation

to the logarithmic equation . Since the 16 can be written as

, the equation can be written .

The above rules are the same for all positive bases. The most common bases are the base 10 and the
base e. Logarithms with a base 10 are called common logarithms, and logarithms with a base e are
natural logarithms. On your calculator, the base 10 logarithm is noted by log, and the base e
logarithm is noted by ln.
There are an infinite number of bases and only a few buttons on your calculator. You can convert a
logarithm with a base that is not 10 or e to an equivalent logarithm with base 10 or e. If you are
interested in a discussion on how to change the bases of a logarithm, click on Change of Base.
For a discussion of the relationship between the graphs of logarithmic functions and exponential
functions, click on graphs.

GRAPHS OF EXPONENTIAL AND

LOGARITHMIC FUNCTIONS

GRAPHS OF EXPONENTIAL FUNCTIONS

By Nancy Marcus
In this section we will illustrate, interpret, and discuss the graphs of exponential and
logarithmic functions. We will also illustrate how you can use graphs to HELP you solve
exponential and logarithmic problems and check your solutions.

Graphs of Functions in General:

Recall that graphs are made up of points that are plotted on rectangular coordinate systems. The
points consist of two parts: (independent variable, dependent variable). The dependent variable is so
named because it's value and behavior depend on the value and behavior of the independent
variable. For purposes of discussion, we will refer to the independent variable as x and the
dependent variable as y or f(x). In reality, you could label them anything: (p, q), (a, b), (d, c), etc.
Reminder: Remember that when we talk about the function, the function value, the value of the
function, y or f(x), we are talking about the value and behavior of the y part of the point (x, y) in the
full set of the points that form the graph..
Exponential Graphs:
Once you know the shape of an exponential graph , you can shift it vertically or horizontally, stretch
it, shrink it, reflect it, check answers with it, and most important interpret the graph.
Example 1:
The function is always positive. There is simply no value of x that will cause the value
of to be negative. What does this mean in terms of a graph? It means that the entire graph of the
function is located in quadrants I and II.

Graph the function . Notice that the graph never crosses the x-axis. Why is that so? It

is because there is no value of x that will cause the value of f(x) in the formula to equal
0.
Notice that the graph crosses the y-axis at 1. Why is that so? The value of x is always zero on the y-
axis. Substitute 0 for x in the equation : . This translates to the point
(0, 1).
Notice on the graph that, as the value of x increases, the value of f(x) also increases. This means
that the function is an increasing function. Recall that an increasing function is a one-to-one-
function, and a one-to-one function has a unique inverse.
The inverse of an exponential function is a logarithmic function and the inverse of a logarithmic
function is an exponential function.
Notice also on the graph that as x gets larger and larger, the function value of f(x) is increasing more
and more dramatically. This is why the function is called an exponential function.

If you are interested in reviewing the graphs of exponential functions, examples and problems, click
on Exponential.
Logarithmic Graphs:
Once you know the shape of a logarithmic graph , you can shift it vertically or horizontally, stretch
it, shrink it, reflect it, check answers with it, and most important interpret the graph.
Example 2:
Graph the function . Notice that the graph of this function is located entirely in
quadrants I and IV. Notice also that the graph never touches the y-axis.
What does that mean? It means that the value of x (domain of the function f(x) in the equation
is always positive. Why is this so? Recall that the equation can be

rewritten as the exponential function . There is no value of f(x) that can cause the value
of x to be negative or zero.
The graph of will never cross the y-axis because x can never equal 0. The graph
will always cross the x-axis at 1.
Notice on the graph that, as x increases, the f(x) also increases. This means that the function is an
increasing function. Recall that an increasing function is a one-to-one-function, and a one-to-one
function has a unique inverse.
Notice on the graph that the increase in the value of the function is most dramatic between 0 and 1.
After x = 1, as x gets larger and larger, the increasing function values begin to slow down (the
increase get smaller and smaller as x gets larger and larger).
Notice on the graph that the function values are positive for x's that are greater than 1 and negative
for x's less than 1.

If you are interested in reviewing the graphs of logarithmic functions, click on Logarithmic.

GRAPHS OF LOGARITHMIC FUNCTIONS

In this section we will illustrate, interpret, and discuss the graphs of logarithmic functions. We
will also illustrate how you can use graphs to HELP you solve logarithmic problems.
(Reflection across the x-axis):
Whenever the minus sign (-) is in front of the function notation, it indicates a reflection across
the x-axis. For example, the graph of - f(x) is a reflection of the graph of f(x) across the x-axis.
The graph of 3 - g(x) involves the reflection of the graph of g(x) across the x-axis and the
upward shift of the reflected graph 3 units.
Example 1:

Graph the function and the function on the same rectangular

coordinate system. and answer the following questions about each graph:
1. What is the domain of both functions?
2. In what quadrants is the graph of the function located?

In what quadrants is the graph of the function located?

3. What is the x-intercept and the y-intercept on the graph of the function ?

What is the x-intercept and the y-intercept on the graph of the function ?

4. Find the point (2, f(2)) on the graph of and find ( 2, g( 2)) on the graph of
.
5. What do these two points have in common?
6. Describe the relationship between the two graphs.
7. How would you move the graph of so that it would be superimposed on the
graph of ? Where would the point (1, 0) on be located after
such a move?

The graph to the right of the y-axis is the graph of the function , and the graph on the
left to the left of the y-axis is the graph of the function .
1. The domain of both functions is the set of positive real numbers.
2. You can see that the graphs of both functions are located in quadrants I and IV to the right of
the y-axis. This verifies that the domain of both functions is the set of positive real numbers.
3. The graphs of both functions cross the x-axis at x = 1. Since neither of the graphs cross the
y-axis, there is no y-intercept.
 4. The point is located on the graph of .

The point is located on the graph of

.
5. Note that both points have the same x-coordinate and the y-coordinate’s differ by a minus
sign.
6. Mentally fold the coordinate system at the x-axis. Note that the graph of the function
is superimposed on the graph of the function .
This means both graphs are symmetric to each other with respect to the x-axis. What exactly
does that mean? Well for one thing, it means if there is a point (a, b) on the graph of
, we know that the point (a, - b) is located on the graph of .

The shapes are the same. The graph of is a reflection over the x-axis of the
graph of .

7. Fold the graph of over the x-axis so that it would be superimposed on the
graph of . Every point on the graph of would be shifted up or
down twice it’s distance from the x-axis. For example, the point (a, 8) is located 8 units up
from the x-axis. If we shifted the point (a, 8) down 16 units, it would wind up at (a, - 8)
units. If the point (b, -11) is located on the graph of , it would be shifted up 22
units to (b, 11). Since the point (1, 0) is on the x-axis, the point would not move.
If you would like to review examples on the following, click on Example:
Reflection over the y-axis: The graph of f(x) versus the graph of f(-x). Example.
Vertical shifts: The graph of f(x) versus the graph of f(x) + C. Example.
Horizontal shifts: The graph of f(x) versus the graph of f(x + C) Example.
Combination horizontal shift and reflection across the y-axis: The graph of f(x) versus the graph of
f(- x + C) or f(C - x) Example.
Combination horizontal and vertical shifts: The graph of f(x) versus the graph of f(x + A) + B
Example.
Combination horizontal and vertical shifts and reflections: The graph of f(x) versus the graphs of -
f(x) + C. f(-x) + C, f(x + C) + D. Example.
Stretch and Shrink: The graph of f(x) versus the graph of C(x). Example.
Stretch and Shrink: The graph of f(x) versus the graph of f(Cx). Example.
Combination of stretch, shrink, reflection, horizontal, and vertical shifts: Example.
Solving an equation from a graph: Example.

CHANGING THE BASE OF A LOGARITHM

Let a, b, and x be positive real numbers such that and (remember x must be
greater than 0). Then can be converted to the base b by the formula
Let's verify this with a few examples.
Example 1: Find to an accuracy of six decimals. Note that the answer will be between 1
and 2 because and , and 7 is between 3 and 9. According to the change of

logarithm rule, can be written .

When the base is 10, we can leave off the 10 in the notation. Therefore can be written

. Using your calculator,

You will note that the answer is between 1 and 2.

Let's check the answer. If , our answer is correct. . Close

enough. Why isn't it 7 exactly? Well we rounded to six places, so our answer won't check

exactly. If we rounded to ten places, then when we checked the answer, it would be closer to 7 than
this answer.
Example 2: We could work the same problem by converting to the base e. According to the change

of logarithm rule, can be written . When the base is e, we can leave off the e in the

notation and can be written . Using your calculator,

You will note that the answer is between 1 and 2.

Example 3: Find . We know that and , and that 18 is between 16 and
32; therefore, we know that the exponent we are looking for is between 4 and 5. In fact, it is closer
to 4 than to 5 because 18 is closer to 16 than it is to 32.

Let's solve this problem by changing the base to 10. can be written . Using your

calculator,
Let's check the answer. If , our answer is correct. .

Close enough. Why isn't it 18 exactly? Since we rounded to six places, our answer won't

check exactly. If we rounded to ten places, then when we checked the answer, it would be closer to
18 than this answer.
Example 4: We could work the problem in Example 3 by converting to the base e. According to the
logarithmic rule, can be written . Using your calculator,

The answer is the same as the answer you found when you converted the base to 10.
If you would like to review more examples of changing the base of a logarithm, click on
Example.
Work the following problems and click on answer if you want to check your answer and review the
solution.
Problem 1: Find .

Answer.
Problem 2: Find .

Answer.
Problem 3: Find .

Answer.
Problem 4: Convert to the base 2.

Answer.

RULES OF LOGARITHMS

Let a be a positive number such that a does not equal 1, let n be a real number, and let u and v
be positive real numbers.
Logarithmic Rule 1:

Logarithmic Rule 2:

Logarithmic Rule 3:
Since logarithms are nothing more than exponents, these rules come from the rules of exponents.
Let a be greater than 0 and not equal to 1, and let n and m be real numbers.
Exponential Rule 1:
Example: Let a = 5, n = 2, and m = 6. and

Exponential Rule 2:

Example: Let a = 5, n = 2, and m = 6. and

Exponential Rule 3:

Example: Let a = 5, n = 2, and m = 6. and

If you want to review exponential rules in detail with examples and problems, click on
Exponential Rules.
If you want to review logarithmic rules in detail with examples and problems, click on one of
the following rules.
Rule 1:
Rule 2:
Rule 3:

OLVING EXPONENTIAL EQUATIONS

To solve an exponential equation, take the log of both sides, and solve for the variable.

Example 1: Solve for x in the equation .

Solution:
Step 1: Take the natural log of both sides:

Step 2: Simplify the left side of the above equation using Logarithmic Rule 3:
 Step 3: Simplify the left side of the above equation: Since Ln(e)=1, the equation reads

Ln(80) is the exact answer and x=4.38202663467 is an approximate answer because we have
rounded the value of Ln(80)..

Check: Check your answer in the original equation.

Example 2: Solve for x in the equation

Solution:
Step 1: Isolate the exponential term before you take the common log of both sides. Therefore,
add 8 to both sides:
Step 2: Take the common log of both sides:

Step 3: Simplify the left side of the above equation using Logarithmic Rule 3:

Step 4: Simplify the left side of the above equation: Since Log(10) = 1, the above equation
can be written

Step 5: Subtract 5 from both sides of the above equation:

is the exact answer. x = -3.16749108729 is an approximate answer..

Check: Check your answer in the original equation. Does

Yes it does.
Example 3: Solve for x in the equation

Solution:
Step 1: When you graph the left side of the equation, you will note that the graph crosses the
x-axis in two places. This means the equation has two real solutions.
Step 2: Rewrite the equation in quadratic form:
 Step 3: Factor the left side of the equation:

can now be written

Step 4: Solve for x. Note: The product of two terms can only equal zero if one or both of the
two terms is zero.
Step 5: Set the first factor equal to zero and solve for x: If , then and

and x=Ln(2) is the exact answer or is an

approximate answer.
Step 6: Set the second factor equal to zero and solve for x: If , then

and and x=Ln(3) is the exact answer or is an

approximate answer. The exact answers are Ln(3) and Ln(2) and the approximate answers are
0.69314718056 and 1.09861228867.

Check: These two numbers should be the same numbers where the graph crosses the x-axis.
Remark: Why did we choose the Ln in Example 3? Because we know that Ln(e) = 1.
If you would like to review another example, click on Example.
Work the following problems. If you want to review the answer and the solution, click on
answer.
Problem 1: Solve for x in the equation .

Answer

Problem 2: Solve for x in the equation .

Answer
Problem 3: Solve for x in the equation .

Answer

Problem 4: Solve for x in the equation .

Answer

Problem 5: Solve for x in the equation .

Answer
Problem 6: Solve for x in the equation .

Answer

SOLVING WORD PROBLEMS

APPLICATIONS OF EXPONENTIAL AND LOGARITHMIC FUNCTIONS

To solve an exponential or logarithmic word problems, convert the narrative to an equation
and solve the equation.

We are going to discuss several types of word problems. Click on the one that you want to review:
1.
Interest Rate Problems
2.
Mortgage Problems
3.
Population Problems
4.
Radioactive Decay Problems
5.
Earthquake Problems

APPLICATIONS OF EXPONENTIAL AND

LOGARITHMIC FUNCTIONS

(Interest Rate Word Problems)

1. To solve an exponential or logarithmic word problems, convert the narrative to an equation
and solve the equation.

Example 1: A $1,000 deposit is made at a bank that pays 12% compounded annually. How much
will you have in your account at the end of 10 years?
Explanation and Solution:
• At the end of the first year, you will have the $1,000 you had at the beginning of the year
plus the interest on the $1,000 or . At the end of the year you will have
 . This can also be written .

• At the end of the second year, you will have the you had at the

beginning of the year plus the 12% interest on the . At the end of the
second year you will have

This can also be written . Another way of writing this is to write

the balance at the end of the second year as .

• At the end of the third year, you will have the you had at the

beginning of the year plus the 12% interest on the . At the end of the

third year you will have

This can also be written . Another way of writing this is to write

the balance at the end of the third year as .

• By now you should notice some common things in each end-of-year balance. For one thing,
the exponent is the same as the year. The base is always 1 + rate or 1 + .12. The $1,000 will
always stay the same in the formula.
• Now we can write the balance at the end of 10 years as which can be

simplified to

rounded to $3,105.85.

Example 2: An $1,000 deposit is made at a bank that pays 12% compounded monthly. How much
will you have in your account at the end of 10 years?
Explanation and Solution:
• In this example the compounded is monthly, so the interest rate has to be converted to a

monthly interest rate of .

• At the end of the first month, you will have the $1,000 you had at the beginning of the
month plus the interest on the $1,000 or . At the end of the month you will

have . This can also be written .

 • At the end of the second month, you will have the you had at the

beginning of the month plus the 1% interest on the . At the end of the
second month you will have

This can also be written . Another way of writing this is to write

the balance at the end of the second month as .

• At the end of the third month, you will have the you had at the

beginning of the month plus the 1% interest on the . At the end of the

third month you will have

This can also be written . Another way of writing this is to write

the balance at the end of the third month as .

• By now you should notice some common things in each end-of-month balance. For one
thing, the exponent is the same as the number of months that have passed. The base is
always 1 + rate or 1 + .01. The $1,000 will always stay the same in the formula.
• There are 120 month in 10 years; therefore, we write the balance at the end of 10 years as

which can be simplified to

rounded to $3,300.39.

Example 3: An $1,000 deposit is made at a bank that pays 12% compounded weekly. How much
will you have in your account at the end of 10 years?
Explanation and Solution:
• In this example the compounded is weekly, so the interest rate has to be converted to a

weekly interest rate of .

• At the end of the first week, you will have the $1,000 you had at the beginning of the week

plus the interest on the $1,000 or . At the end of the week you will have
This can also be written .

• At the end of the second week, you will have the you had at the

beginning of the week plus the interest on the . At the end of the

second week you will have

This can also be written

Another way of writing this is to write the balance at the end of the second week as

• At the end of the third week, you will have the you had at the

beginning of the week plus the interest on the . At the end of

the third week you will have

This can also be written

Other way of writing this is to write the balance at the end of the third week as

.
 • By now you should notice some common things in each end-of-week balance. For one thing,
the exponent is the same as the week. The base is always 1 + rate or . The

$1,000 will always stay the same in the formula.

• There are 520 weeks in 10 years; therefore, we write the balance at the end of 10 years as

which can be simplified to

rounded to $3,315.53.

Example 4: An $1,000 investment is made in a trust fund at an annual percentage rate of 12%,
compounded monthly. How long will it take the investment to reach $2,000?
Answer: It would take about 5 years and 10 months for the investment to reach $2,000.
Explanation and Solution:
Step 1: The annual percentage rate is the rate that you would receive if the interest was
calculated at the end of the year. This means there was no compounding during the year.
Step 2: Determine what the interest rate would be per month by dividing the 12% by 12
months:

Step 3: From Example 2 above, we know that we can find the balance after t years as follows:

We use 12 t because there are 12 months in every year.

Step 4: Replace the right side of the above equation with $2,000:

Step 5: We must isolate the exponential term; therefore, divide both sides by $1,000:

Step 6: Take the natural logarithm of both sides of the above equation:

Step 7: Simplify the left side of the above equation:

 Step 8: Divide both sides of the above equation by :

Step 9: Note that 5.80505974113 years can be written 5 Years + 0.80505974113 Years. If you

multiply 0.80505974113 years by 1 in the form you get 9.6607 months. This

indicates that it takes 5 years and about 10 months for the $1,000 to reach $2,000.

If you would like to see more examples on interest rates, click on Example.
Work the following problems. If you want to check your answer and solution click on Answer.
1.
If you invested $1,000 in an account paying an annual percentage rate (quoted rate) of 12%,
compounded quarterly, how much would you have in you account at the end of 1 year, 10
years, 20 years, 100 years?

Answer.

2.
If you invested $1,000 in an account paying an annual percentage rate (quoted rate) of 12%,
compounded weekly, how much would you have in you account at the end of 1 year, 10 years,
20 years, 100 years?

Answer.

3.
If you invested $1,000 in an account paying an annual percentage rate (quoted rate)
compounded daily (based on a bank year of 360 days) and you wanted to have $2,500 in your
account at the end of your investment time, what interest rate would you need if the
investment time were 1 year, 10 years, 20 years, 100 years?

Answer.

4.
If you invested $1,000 in an account paying an annual percentage rate (quoted rate) of 12%,
compounded hourly (based on a bank year of 360 days), how much would you have in you
account at the end of 1 year, 10 years, 20 years, 100 years?

Answer.

5.
If you invested $1,000 in an account paying an annual percentage rate (quoted rate) of 12%,
compounded continuously, how much would you have in you account at the end of 1 year, 10
years, 20 years, 100 years?

Answer.
6.
If you invested $1,000 in an account paying an annual percentage rate compounded quarterly ,
and you wanted to have $2,500 in your account at the end of your investment time, what
interest rate would you need if the investment time were 1 year, 10 years, 20 years, 100 years?

Answer.

APPLICATIONS OF EXPONENTIAL AND

LOGARITHMIC FUNCTIONS

(Interest Rate Word Problems)

1. To solve an exponential or logarithmic word problems, convert the narrative to an equation
and solve the equation.

Example 2: A $5,000 investment is made in a trust fund at an annual percentage rate of 10%,
compounded annually. Predict the balance in the account after 5 years. How long will it take the
investment to reach $15,500? Suppose that another bank promised you that your account would
reach $15,500 in 10 years, what annual interest would the second bank be paying?
Explanation and Solution:
• Balance at the end of the first year: The trust account began the year with the $5,000
investment and will have a balance equal to the $5,000 plus the 10% interest on the $5,000
at the end of the first year.

or .

• Balance at the end of the second year: The trust account began the year with a balance of
$5,500 investment and will have a balance equal to the $5,500 plus the 10% interest on the
$5,500 at the end of the second year.

or .

• Note that in terms of the initial investment, the above steps could be written

• Balance at the end of the third year: The trust account began the year with a balance of
 $6,050 investment and will have a balance equal to the $6,050 plus the 10% interest on the
$6,050 at the end of the third year

or .

• Note that in terms of the initial investment, the above steps could be written

• Balance at the end of the fourth year: The trust account began the year with a balance of
$6,655 investment will have a balance equal to the $6,655 plus the 10% interest on the
$6,655 at the end of the second year

or

• Note that in terms of the initial investment, the above steps could be written

• Balance at the end of the fifth year: The trust account began the year with a balance of
$7,320.50 investment will have a balance equal to the $7,320.50 plus the 10% interest on the
$7,320.50 at the end of the fifth year

or

• Note that in terms of the initial investment, the above steps could be written

• If you deposit $5,000 in an account that pays 10% per year with annually compounding, and
you left the money in the account for 5 years, you would have a balance of $8,052.55 at the
end of the 5 years.
• The second part of the problem was to estimate how many years it would take for the
account to teach $15,500.
• In this problem, you know the starting amount, the ending amount, and the interest rate,
what you are trying to determine is the time

• Divide both sides by $5,000:

• Take the Log of both sides:

• Simplify the right side of the above equation using the third rule of logarithms:

• Divide both sides of the above equation by Log(1.10):

• This means that it takes almost 12 years for your account to reach $15,500.
• The third part of the problem was to estimate the interest rate if your $5,000 reached
$15,500 in 10 years.

• In this problem, you know the starting amount, the ending amount, and the time, what you
are trying to determine is the annual interest rate

• Divide both sides of the above equation by $5,000:

• Take the Log of both sides of the above equation:

• Simplify the right side of the above equation using the third rule of logarithms:

• Divide both sides of the above equation by 10:

• Calculate the left side of the above equation:

• Rewrite the logarithmic equation as an exponential equation with base 10 and exponent
 0.04913616938834:

• Subtract 1 from both sides of the above equation:

• Simplify the left side of the above equation:

rounded to 0.1198

• This means that for the $1,000 to reach $15,500 in 10 years, the bank would have to pay
11.98% interest, compounded annually.

(Interest Rate Word Problems)

1. To solve an exponential or logarithmic word problems, convert the narrative to an equation
and solve the equation.

Example 3: You are trying to decide whether to deposit your $1,000 in Bank A, Bank B, Bank C,
Bank D, or Bank E. You want to leave your money in the bank for 5 years and you want to
maximize your ending balance.
Bank A pays 15% simple interest; Bank B pays 14% interest compounded monthly; Bank C pays
13.3% interest compounded quarterly; Bank D pays 13% interest compounded continuously; and
Bank E pays 13.5% interest compounded weekly.
Which bank pays the most and which bank pays the least? In which bank will you deposit your
money? What is the effective interest rate of each of the banks?
Explanation and Solution:
• Bank A: Simple interest means that there is no compounding. At the end of the five years,
you will have your initial $1,000 plus the interest earned on the $1,000. The interest is
calculated by multiplying the interest rate, 15%, by the number of years, 5. Therefore, the
interest earned is . You will have

at the end of the five years.

The effective interest rate is the interest rate, compounded yearly, that would give you the same
balance in five years

or
which gives

hence

This means that although the bank is quoting a high interest rate of 15%, in reality, the effective
interest rate is only 11.84%

• Bank B: This bank pays 14% interested compounded monthly. This means that the interest
is paid every month on the balance in the account. Or, the interest is paid 12 times a year for
5 years. Your balance will be

or

at the end of the five years.

The effective interest rate is the interest rate, compounded yearly, that would give you the same
balance in five years

or

which gives
hence

This means that although the bank is quoting a 14% interest rate, in reality, the effective interest rate
is a little higher at 14.93.%

• Bank C: This bank pays 13.3% interest compounded quarterly. This means that the interest
is paid every quarter on the balance in the account. Or, the interest is paid 4 times a year for
5 years. Your balance will be

at the end of the five years.

The effective interest rate is the interest rate, compounded yearly, that would give you the same
balance in five years

which gives

This means that although the banks is quoting a 13.3% interest rate, in reality, the effective interest
rate is a little higher at 13.98%

• Bank D: This bank pays 13% interested compounded continuously. This means that the
interest is calculated and paid continuously on the balance in the account. Your balance will
be
at the end of the five years.
The effective interest rate is the interest rate, compounded yearly, that would give you the same
balance in five years

which gives

This means that although the banks is quoting a 13% interest rate, in reality, the effective interest
rate is a little higher at 13.88%

• Bank E: This bank pays 13.5% interested compounded weekly. This means that the interest
is paid every week on the balance in the account. Or, the interest is paid 52 times a year for
5 years. Your balance will be

or

at the end of the five years.

The effective interest rate is the interest rate, compounded yearly, that would give you the same
balance in five years
which gives

This means that although the banks is quoting a 13.5% interest rate, in reality, the effective interest
rate is a little higher at 14.43%

To recap: The effective interest rates of Banks A, B, C, D, and E are: 11.84%, 14.93%, 13.98%,
13.88%, and 14.43%, respectively. It appears that Bank B pays the most and Bank A pays the least.

(Interest Rate Word Problems)

1. To solve an exponential or logarithmic word problems, convert the narrative to an equation
and solve the equation.

Problem 1: If you invested $1,000 in an account paying an annual percentage rate (quoted rate) of
12%, compound quarterly, how much would you have in you account at the end of 1 year, 10 years,
20 years, 100 years.
Answer: 1 year = $1,125.51,10 Years = $3,262.04, 20 years = $10,640.89, 100 years =
$136,423,718.23
Solution and Explanations:
Use the formula

where A is the balance at the end of a certain time period, P is the beginning investment, t is
the number of years. The annual rate of 12% is converted to a quarterly interest rate since the
compounding is quarterly (4 times per year). Take the annual interest rate of 12% and divide
by 4 to obtain the quarterly interest rate. The exponent is 4t because there are 4 compounding
periods in every year. Therefore, 4t represents the number of compounding periods during t
years.

To find the balance at the end of 1 year:

Substitute $1,000 for P and 1 for t in the equation to derive A:

To find the balance at the end of 10 year:

Substitute $1,000 for P and 10 for t in the equation to derive A:

To find the balance at the end of 20 year:

Substitute $1,000 for P and 20 for t in the equation to derive A:

To find the balance at the end of 100 year:

Substitute $1,000 for P and 100 for t in the equation to derive A: