Extra In-Class Sec 5.1 Excercises
What is the value of t in the simple interest formula I = Prt if the principal
is invested for 90 days? (Assume that interest is calculated based on a
360 day year.)
Solution: Remember that in the simple interest formula, t must be
expressed in years so…
(or 0.25)
Find the simple interest given the following:
Principal: $6000, Rate: 4%, Time: 4 months
Solution: P = 6000, r = 0.04,
(Remember that t must be expressed in years)
( )=
=$80.00
Find the total amount in an account if $2500 is invested at 6%
compounded quarterly after 3 years.
Solution: Remember:
A = accumulated amount/compound amount/future value
P = Principal = 2500
r = annual interest rate = 0.06
m = # of compounding periods/year = 4
t = # of years = 3
n = mt = 4(3) = 12
A company needs $80,000 in 7 years for an expansion. How much should
the company deposit now at 5% compounded semiannually so reach
their goal?
Solution: Remember:
A = accumulated amount/compound amount/future value = 80000
P = Principal = ?? (This is what we are looking for.)
r = annual interest rate = 0.05
m = # of compounding periods/year = 2
t = # of years = 7
n = mt = 2(7) = 14
P = $56618.18
As the prize in a contest, you are offered $14,000 now or $22,000 in 8
years. If the money can be invested at 6% compounded annually, which
prize will be worth more in 8 years?
Solution: Just see how much you could earn by taking the $14000 now
and investing it at 6% compounded annually for 8 years and determine if
it is more or less than $18500.
Solution: Remember:
A = accumulated amount/compound amount/future value
P = Principal = 14000
r = annual interest rate = 0.06
m = # of compounding periods/year = 1
t = # of years = 8
n = mt = 1(8) = 8
So, taking the $14,000 now would be the prize that is worth the most.