Simple Interest
Alex invests $1,000 in a savings account that pays 5% simple interest per year. How much interest will Alex earn after 3 years?
Formula:I = P x R x T
Alex will earn $150 in interest after 3 years.
Emma deposits $1,000 in a savings account that pays 4% interest compounded annually. How much will she have after 3 years?
Answer: $1,124.86
A bank offers 6% annual interest. About how many years will it take for $1,000 to double using the Rule of 72?
Answer: About 12 years
Lily invests $800 at 5% simple interest per year. How much interest will she earn after 3 years?
Answer: $120
Jamie wants to save $500 for a new bike. She deposits $500 in a bank account that pays 5% simple interest per year. How much interest will she earn in 2 years?
Answer: $50
Maria borrows $500 from a friend at 4% simple interest per year. How much interest will she owe after 2
Maria will owe $40 in interest after 2 years.
A bank offers 6% interest compounded semiannually. If you invest $2,000 for 2 years, how much will you have?
Answer: $2,251.02
An investment grows at 8% per year. Using the Rule of 72, how long will it take for your money to double?
Answer: About 9 years
An investment account earns 6% annual interest. Approximately how long will it take for the investment to double using the Rule of 72?
Answer: About 12 years
A savings account pays 6% interest compounded annually. Emma deposits $1,000. After 3 years, which will be higher: the total in her account using simple interest or compound interest?
Answer: Compound interest is higher:
Jordan invests $2,500 in a savings account that pays 6% simple interest per year. After how many years will Jordan have earned $900 in interest?
It will take 6 years for Jordan to earn $900 in interest.
Jackson invests $3,500 at 5% interest compounded quarterly. How much will he have after 5 years?
Answer: $4,487.13
Maria wants her savings to double in about 10 years. What annual interest rate should she look for?
Answer: She should look for about 7.2% interest per year
Alex deposits $1,500 in an account earning 5% interest compounded annually. How much will the account be worth after 4 years?
Answer: $1,823.26
Michael is comparing two investments:
Which investment will earn more, and by how much?
Answer: Compound interest earns $33.28 more
Liam invests $1,800 in a savings account at 5% simple interest per year. After 4 years, how much total money (principal + interest) will Liam have?
Liam will have $2,160 after 4 years.
A principal of $6,000 is invested at 3% interest compounded monthly. How much will it be worth after 4 years?
Answer: $6,764.94
A savings account offers 4% interest per year. Using the Rule of 72, estimate how long it will take for $5,000 to double.
Answer: About 18 years
A loan accrues $450 in simple interest over 3 years at an annual rate of 6%. What was the original loan amount?
Answer: $2,500
A friend offers to lend you $3,000 at 5% simple interest per year for 4 years. Another bank offers $3,000 at 4.8% compound interest annually for 4 years. Which is the better deal if you are borrowing?
Better deal = 5% simple interest (less total paid: $3,600 < $3,608.74)
A bank offers a simple interest loan. Sarah borrows a certain amount at 7% per year. After 5 years, she pays $1,750 in interest. What was the original amount she borrowed?
Sarah borrowed $5,000 originally.
A student invests $8,000 in an account that earns 4.5% interest compounded quarterly. How much will the investment be worth after 6 years?
Answer: $10,453.60
John wants his money to quadruple (4×) instead of just double. His investment earns 6% annual interest. Using the Rule of 72, estimate how many years it will take.
Answer: About 24 years
Samantha invests money at 9% interest per year. Using the Rule of 72, estimate how long it will take for her money to quadruple.
Answer: About 16 years
Scenario:
Samantha wants to quadruple her money. She can invest in:
Using estimates (or Rule of 72), which account will reach her goal faster?
Answer: Account B (compound interest) is faster (24 years < 37.5 years)