The Algebra Teacher\'s Guide to Reteaching Essential Concepts and Skills

Name Date

WORKSHEET 8.17: USING THE COMPOUND INTEREST

FORMULA

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Compound interest is interest paid on the principal and accumulated unpaid interest in a

bank account or other investment. The following formula is used to calculate compound

interest:A=P

(

1 +

r

n

)nt

.

A= the amount of money accumulated afternyears

P= the principal amount (initial amount of money deposited)

r= the annual rate of interest (expressed as a decimal)

n= the number of times interest is compounded per year

t= the number of years the amount is deposited

DIRECTIONS: Solve each problem using the compound interest formula. Round your

answer to the nearest hundredth. (For each problem, assume that the person does not

withdraw any of the principal or accumulated interest.)

1. Sarah placed $750 in an account in the bank. The bank pays an interest rate of 3.1%,
   compounded monthly. How much money will she have after two years?


2. Tom put $900 in an account at an interest rate of 4.7%, compounded every four months.
   How much money will he have after five years?


3. Jamal invested $2,000 at an interest rate of 2.7%, compounded semiannually. How
   much money will he have after ten years?


4. Diana invested $1,500 in long-term bonds at an interest rate of 4.9%, compounded
   yearly. How much money will she have after twenty years?

CHALLENGE:Danielle is considering putting $1,000 into a savings account for

one year. Bank A offers an interest rate of 2%, compounded annually. Bank

B offers an interest rate of 1.75%, compounded quarterly. Which bank

offers the better deal? Explain your answer.

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2011 by Judith A. Muschla, Gary Robert Muschla, and Erin Muschla. All rights reserved.