Simple interest With simple interest, the interest earned is not reinvested. ‘This means that the amount of interest earned each year is unchanged. Richard invests $400 at a rate of 5% per year simple interest. Calculate the amount Richard has after 3 years. SeWges Interest earned in first year ~ 5% of $400 ~ 0.05 x 400 ~ $20 Interest earned in 3 years ~ 3 * 20 ~ $60 ‘Value of investment after 3 years = $400 + $60 = $460 Compound interest With compound interest, the interest earned each year is reinvested. ‘This means that the amount of interest earned each year increases. The following example shows three methods for finding the final value of an investment. Richard invests $400 at a rate of 5% per year compound interest. Calculate the amount Richard has after 3 years. Method 1 Interest in first year = 0.05 x 400 = $20 Value of investment after 1 year ~ 400 + 20 ~ $420 cw iaes Interest in second year = 0.05 * 420 = $21 ‘Value of investment after 2 years = 420 +21 = $441 Interest in third year ~ 0.05 x 441 ~ $22.05 ‘Value of investment after 3 years = 441 + 22.05 = $463.05 Method 2 (Quicker method) Value of investment after 1 year Value of investment after 2 years Value of investment after 3 years = 441 * 1.05 = $463.05 _matiplying factor is 1.05 (= 1 + 0.05) Method 3 (Quickest method!) ‘Value of investment after 3 years = 400 1.05" = $463.05 Simone invests $200 at a rate of 4% per year compound interest. (Galeulefe iterapline Sinise hes affen5 yeate eWges ‘Value of investment after 5 years = 200 * 1.045 = $243.33 (to the nearest cent) 250 (muEXERCISE 6.2 1. Amelia invests $80 at a rate of 15% per year, simple interest. Calculate the amount of interest Amelia earns in 5 years. 2. Karl invests $700 at a rate of 2% per year, simple interest. Calculate the total amount Karl has after 4 years. 3. Barbara invests $250 at a rate of 6% per year, simple interest. Calculate the total amount Barbara has after 3 years. 4. Sebastian invests $450 at a rate of 3.5% per year, simple interest. Calculate the total amount Sebastian has after 2 years. 5. Jack invests $500 at a rate of 3% per year, compound interest. Calculate the total amount Jack has after 2 years. 6 Onar invests $2000 at a rate of 2.5% per year, compound interest. Calculate the amount Omar has after 3 yeats. 7 Eduard invests $700 at a rate of 2% per year, compound interest. Calculate the amount Eduard has after 4 years. 8 Anelie invests $400 at a rate of 5% per year, compound interest. Calculate the amount of interest Anelie earns in 3 years. 9 Ferdinand invests $50 at a rate of r% per year, simple interest. After 4 years he has a total amount of $56. Calculate the value of r. ry 10 Hanna invests $400 at a rate of r% per year, simple interest. After 5 years she has a total amount of $700. Calculate the value of r. 11 Ferdinand invests $720 at a rate of 5% per year, compound interest. How many years will it be before his investment is worth more than $1000? 12. Robert bought his car 4 years ago. Each year the value of the car has depreciated by 15%. The car is now worth $6264. Calculate how much the car was worth when Robert bought it. 13 In 2009 the manatee population in Florida was estimated at 3800, ~~ ~~ ‘The population is declining at a rate of approximately 1.1% per year. | KEY WORDS Estimate what the manatee population will be in the year in 2020. F_reverse percentage [simple interest [compound interest Percentages 3 (IPE