6.7- Review of Simple and Compound Interest
Simple Interest formulas:
I  Pr t
A PI
I = dollar amount of interest owed/earned
P = principal = sum of money deposited/borrowed now, in the present
r = rate of interest as a decimal
t = time in years
A = sum of money owed/accumulated in your account in the future
r
Compound Interest formulae:
I
Pt
t
I
Pr
P
I
rt
A  P(1  i) n
A = sum of money owed/accumulated in your account in the future
P = principal = sum of money deposited/borrowed now, in the present
i = rate of interest per compounding period
n = number of compounding periods
To get to TVM solver: [apps] [enter] [enter]
Definitions of the variables
N = Number of years
I% = Interest rate as a percent (not decimal)
PV = Present Value (Principle or P in the formula A 
PMT = Always set to 0.00
FV = Future value ( final amount or A in the formula )
P/Y = Always set to 1
C/Y = Number of compounding periods per year.
P(1  i) n )
Some important notes:
 Always set number of decimal places to 2 before starting (mode, float, 2)
 Either PV or FV must be negative.
 A value must be entered for every variable.
 Set the variable you are trying to solve for ( A, i, t , or P ) to 0.00
 With the cursor on the variable you want to find, press Alpha, Enter
1. Give TWO reasons why you should have credit.
2. Give THREE drawbacks of a credit card that you might fall victim to.
Calculate the interest and the amount for the following simple interest problems:
a) $ 3500 borrowed for 5 years at 6.5 %
(i = $1137.50, A=$4637.50)
3.
b) $ 5000 borrowed for 30 months at 7.2 %
(i = $900, A=$5900)
c) $ 1000 deposited for 1000 days at 10 %
(i = $273.97, A=$1273.97)
4. Find the unknown in these simple interest questions:
a) Sal owed $ 225 interest on a loan he took for 3 years at 6 % pa. Find the amount borrowed
(P = $1250)
b) Janet deposited $ 3400 for 4 months at 8.12 % pa. How much did she have at the end ?
($3492.03)
c) Mario borrowed $ 1250 for 5 years. At the end he owed $ 1524.35. What was the rate of interest?
(4.38%)
5. Complete the following chart using the formula
n
Problem
A  P1  i 
$ 250 deposited
for 11 years @ 6
% compounded
annually
(474.57)
P=
A=
i=
n=
$ 2000 borrowed
for 5 years @ 8 % P=
A=
compounded
i=
semi-annually
n=
$ 600 deposited
for 15 years @ 8 P=
A=
% compounded
i=
quarterly
n=
$ 550 deposited
for 30 months @ P=
7 % compounded A=
i=
semi-annually
n=
$ 7500 deposited
P=
for 6 months @
A=
7.3 %
i=
compounded
n=
annually
$ 2300 borrowed
for 3 years @ 24 P=
A=
% compounded
i=
monthly
n=
$ 3000 deposited
for 50 years @ 9 P=
A=
% compounded
i=
daily
n=
(2960.49
(1968.62)
(653.23)
(7768.93)
(4691.74)
(269901.64)
Use the TVM Solver to solve these questions:
4.
What amount needs to be invested at 6.2 % compounded annually if you need to have $
10,000 after 10 years ?
5.
How long does it take for $ 2000 to grow to $ 3000 if interest is compounded quarterly at the
following rates ?
a) 7.88 %
b) 9 %
c) 4.5 %
6. Jim borrowed some money at 5 % compounded monthly for 4 years, and owed $ 5000 at the
end. How much did he borrow ?
7. Samad borrowed $ 3000 for 12 years and owed $ 4000 at the end. If the interest was
compounded daily, what was the rate of interest ?
8. Rona invests $ 5000 at 8 % compounded semi-annually. How long will she have to leave the
money in for if she wants to have:
a) $ 6000
b) $ 8000
c) $ 10,000
9. Sheena borrowed $ 2500. After 5 years she owed $ 4546.37 What was the rate of interest if it
was compounded
a) annually
b) quarterly
c) daily
Answers:
4.
5.
6.
7.
8.
9.
$ 5479.68
a) 5.2 years b) 4.56 years
$ 4095.36
2.40 %
a) 2.32 years b) 5.99 years
a) 12.71 %
b) 12.14 %
c) 9.06 years
c) 8.84 years
c) 11.96 %