Mathematics of Finance
Part 1: “Leave it Alone” Finances: Comnound and Simple Interest
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(1) Simple Interest:
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Example 1: Given that we invest $10,000 for four years at a annual interest rate of 7.5%
(a) If it’s interest, how much interest will we receive at the end of the four year period?
What will the account value be?
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(b) If the interest islcpmpounded twice yeiJ what will the account be worth? How much
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Example 2: Mary borrowed $3,000 at an interest rate of 18%. How much interest is due in 65 weeks if
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Example 3: Assume that we invest $6,000 at 5% annual interest
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Example 4: Hyiach money do you need to invest now in order to retire with 2,000,000 in
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Example 5:
(a) Find the value of an account after 3 years if it’s )compounded contiois].
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(b) What interest rate must we find if we want to invest the same $5,000 in atinucij1
compoundjaccount for 3 years and have a future value of at least $7,000.
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Example 6: Which is a better investment deal?
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(c) An account earning 8.75% interest[compounded quarterly
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(d) An account earning 8.6% interest)compounded continiij
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