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-