Practical Algebra 2C

eDay Assignment #2	Name___________________________ April 5th, 2014

Compound interest: Interest that is earned on both the principal and any interest that has been earned previously.

Compound interest formula: A	P 1

r nt

n

A = ending dollar amount

P = Principal, beginning dollar amount r = interest rate in decimal form
n = number of times the interest is compounded annually annually – 1
semiannually – 2 quarterly – 4 monthly – 12
t = time in years

Example 1

If Bob puts $200 in a savings account at a rate of 6.2% compounded quarterly for 5 years. How much money would be in the account after 5 years?

A= ??? P = 200
r = 0.062 n = 4
t = 5

A	P 1

r nt

n

A 200 1

0.062 4 5

4

A	200(1 0.0155)20 A	200(1.0155)20
A $272.04

Use this example to complete the following problems. Be sure to show all calculations to receive full credit…

1. An initial deposit of $5,000.00 is made into a savings account that compounds 7.1% interest annually. How much is in the account at the end of 5 years.

2. After 80 years of 5.8% interest compounded monthly, an account has $102,393.44. What was the original deposit amount?

3. How much would need to be deposited into an account earning 4.7%, compounded quarterly, so that the balance will be $1,000,000.00 in 20 years?

4. Mary discovers a bank account her parents left for her that was opened when she was born 50 years ago. The statement she found states the deposit amount of $100.00 into an account earning 1.8% compounded quarterly. What was the balance of her account now?

5. Mary also discovers another statement her grandpa opened for her 50 years ago. This was also $100.00 at 1.8%, but it is compounded monthly. How much is in this account now? Why is this account more than the previous question?

6. The first credit card that you signed up for charges 12.49% interest to its customers, with interest compounded monthly. Within on day of getting your credit card, you max out the credit limit by spending $1,200.00. If you do not buy anything else on the card and you do not make any payments, how much money would you owe the company after 3 years?

7. You win the lottery and get $1,000,000. You decide that you want to invest the all of the money into a savings account. However the bank has two different plans. In 5 years, which plan will provide you with more money? How much more money?

Plan 1
6% interest rate compounded monthly

Plan 2
12% interest rate compounded every other month

8. Your older sister is about to make you an aunt/uncle. As a gift you deposit $100.00 into an account that compounds interest quarterly. A few years pass, and you discover that the account has $211.11. Exactly how many years has the account been open? (Hint: you may have to use logarithms to figure this out)