Compound Interest (business mathematics.ppt

Business math

1. 7,7 Problem
Solving:
Compound
Interests

2. Simple interest: I=prt
I = interest
p = principal: amount you start with
r = rate of interest
t= time in years

3. 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.

4. A = p(1+r)
t
A = balance p = principal
r = rate t = time in years
Compound interest formula:

5. 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

6. How much should you invest at
7% to have $200 after 5 years?
A = p(1+r)
t
(Plug in what you know.)
200 = p(1.07)
5
(get p alone, then use a calculator.)
142.60= p

7. If you put $100 in the bank at
4% interest and leave it until
you are 60, how much money
will you have?
A = p(1+r)t
= 100(1.04)
46
(This assumes you are currently 14)
= 607.48

8. What about a mutual fund
that pays 10% interest?
A = p(1+r)t
= 100(1.10)
46
= 8017.95