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6 Problem
Solving:
Compound
Interests
Simple interest: I=prt
I = interest
p = principal: amount you start with
r = rate of interest
t= time in years
If you invest $3,000 at 5% for one year, how
much will you make for the year?
I = prt
= 3000 0.05 1
= 150
You made $150 for the
year.
Compound interest formula:
A = p(1+r)t
A = balance p = principal
r = rate t = time in years
Find the total amount in your account if
you start with $750 at 7.5% interest for
2.5 years.
A = p(1+r)t
= 750(1+0.075)2.5
= 750(1.075)2.5 (use a calculator here!)
= $898.63
How much should you invest at
7% to have $200 after 5 years?
A = p(1+r)t
= 100(1.04)46 (This assumes you are currently 14)
= 607.48
What about a mutual fund
that pays 10% interest?
A = p(1+r)t
= 100(1.10)46
= 8017.95