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Formulas NeededThere space two key formulas girlfriend will need for the problems on this page:Simple interestI = ns x r x twhere ns = Interest, p = principal, r = attention rate, t = timeCompound interestFuture worth = ns x (1 +r⁄ n)ntwhere ns = principal, r = interest rate, t = time in years, n = number of times per year attention is compoundedCompound interest = Future worth - P
Practice Problems1) You invest $1272 in a business. At the finish of the year, you earn 3% interest. How much money did girlfriend earn?Answer:This is basic interest together it wasn"t being compounded transparent the year. So you use the an easy interest formula:I = p x r x tP = the primary or $1272 in this caser = interest price which is 3%. We compose that together 3/100 or .03 in the formula.t = time, in this case that is 1 for 1 yearI = 1272 x .03 x 1I = $38.162) You put $3000 in the bank. The money earns a an easy interest rate of 2.5%. How much money will certainly you knife in interest over the next 10 years?I = ns x r x tI = $3000 x .025 x 10I = $750You will certainly earn $750 in interest over 10 years.3) consider problem number 2 currently with compounding interest. You put $3000 in the financial institution at an interest price of 2.5%. Now the interest is compounded monthly. Exactly how much interest will certainly you earn end 10 years? how much much more interest did the deposit earn with compound interest vs. Straightforward interest?Future value = ns x (1 +r⁄ n)ntP = major which is $3000r = interest rate which is 2.5% or .025t = time in year which is 10n = variety of times per year the attention is calculated i beg your pardon is 12 for each month that the yearFV = 3000 x (1 +.025⁄ 12)10 x 12FV = 3000 x 1.28369154...FV = $3,851.07Now subtract the original principal indigenous the future value to gain the link interest:Compound attention = $3,851.07 - $3,000 = $851.07For the second part of the trouble we to compare the link interest v the simple interest figured in problem #2:Compound attention - an easy interest$851.10 - $750 = $151.10You have the right to see that by utilizing compound attention the deposit earned second $151.10.
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4) If you invest $5000 in a fund that deserve 5% interest compounded quarterly, what would certainly be the last value the the investment after 7 years?In this situation we can just usage the future worth formula for compound interest:Future value = p x (1 +r⁄ n)ntP = $5000r = 5% or .05t = 7 (for 7 years)n = 4 (this is since quarterly is every 3 month or four times per year)FV = 5000 x (1 +.05⁄ 4)7 x 4FV = $7,079.96The investment will be precious $7,079.96 after 7 years.Learn more about Money and Finance:
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