advertisement

Name: _______________________________ Period: ____ Precalculus H/GT Practice Problems: Compound Interest 1. What is the best way to invest $5000 for 2 years? 1 Option I: 10 % simple interest 4 Option II: 10% compounded annually 7 Option III: 9 % compounded monthly 8 Option IV: 9.75% compound continuously 2. Suppose you need $20000 in 15 years. How much do you have to invest now in an account that pays: (a) 8.5% interest compounded annually? (b) 8.5% interest compounded monthly? 3. Mei purchased her house in 1972 for $35000. If the value of real estate increases at a rate of 15% per year, when, to the nearest year, will her house be worth $300000? 4. At what interest rate would you have to invest in order to triple your investment in 20 years if: (a) Simple interest (b) Interest rate is compounded quarterly (c) Interest rate is compounded continuously 5. A $125000 piece of heavy machinery is depreciating at 8% per year. (a) How much is it worth after 5 years? (b) How much is it worth after 7 years? (c) How long will it take to be worth less than $50000? Answer List: 1. Option III gives the most accumulated amount, $6086.84 2. (a) $5882.80 (b) $5613.79 3. 1987 (1987.372) 4. (a) 10% (b) 5.531% (c) 5.493% 5. (a) $82385.19 (b) $69730.83 (c) 10.989 or 10.990 years -1-