Interest is a fee paid for the use of someone else’s money. If you invest your money or
save your money in a bank account, you can earn interest. Similarly if you borrow
money, you will pay interest on the amount that you have borrowed.
Interest is calculated in two different ways:
Simple interest: Is calculated only on the original sum of money invested of borrowed
(known as the ‘principal’ amount of a loan).
Compound interest: Is calculated on the principal amount and also on the accumulated
interest of previous periods, and can be regarded as “interest on interest”.
Read more: http://www.investopedia.com/articles/investing/020614/learn-simple-andcompound-interest.asp
© Young Enterprise Trust 2015
Doc ID: MM-007-1
Molly puts $1,000 into a bank savings account for three years.
1. How much money would Molly have after three years if the money earned 3% simple interest per
year?
a) $1,003
b) $1,300
c) $1,090
2. How much money would Molly have if the money earned 3% compound interest per year?
a) $1,092.73
b) $1,300.03
c) $3,000.00
Samson puts $500 into a bank savings account for one year.
3. How much money will Samson have at the end of the year if the money earned 5% simple interest
per month?
a) $505
b) $800
c) $525
4. How much money will Samson have if the money earned 5% compound interest per month?
a) $897.93
b) $550.00
c) $1,050.05
© Young Enterprise Trust 2015
Doc ID: MM-007-1
5. Arnie has $1000 debt on his credit card at an APR (annual percentage rate) of 19% interest. The
bank calculates compound interest based on the daily balance. If Arnie does not pay off any of
the $1000 he owes, how much would he owe in total one month (30 days) later?
a) $1,019.00
b) $1,015.60
c) $1,570.30
This might be helpful to see how to do this calculation: http://www.mybanktracker.com/creditcards/basics/How-Is-Interest-Calculated/106354
6. There is a rule which lets you figure out how long it takes to double your money based an annual
compound interest.
The rule is: Years to double money = 72 ÷ interest rate.
If Lee invests $300 at an interest rate of 4%, how long would it take Lee to double his money and
have $600?
a) 4 years
b) 8 years
c) 18 years
7. Becoming a millionaire!
Lee decides that he’d really like to be a millionaire.
If he wants to become a millionaire in the next forty years, how much money would he need to
invest now if the interest rate was 7.2%?
© Young Enterprise Trust 2015
Doc ID: MM-007-1