LESSON
16.2 Saving and Investing
How can you save money by investing small amounts of
money regularly?
ADDITIONAL EXAMPLE 1
Suppose you have two savings accounts, both with
a principal of $200 and an interest rate of 5%, but
one earns simple interest and one earns interest
compounded annually. Which account will earn
more interest after 20 years? Explain.
The account with the compound interest earns
more. The account that earns simple interest will
earn $200. The account that earns compound
interest will earn $330.66.
16.2 LESSON QUIZ
8.12.C, 8.12.D
Fred and Melissa make regular deposits to a
savings account. They both deposit $100 at
the beginning of each year. Fred’s account
earns simple interest at a rate of 4%.
Melissa‘s account earns interest compounded
annually at a rate of 4%.
1. How much interest does Fred earn at the end of
the first year? $4
2. How much interest has Fred earned altogether
by the end of the fifth year? $20
Fred and Melissa make regular deposits to a
savings account. They both deposit $100 at
the beginning of each year. Fred’s account
earns simple interest at a rate of 4%.
Melissa‘s account earns interest compounded
annually at a rate of 4%.
3. How much interest does Melissa earn at the end
of the first year? $4
4. How much interest has Melissa earned
$21.67
altogether by the end of the fifth
year?
Fred and Melissa make regular deposits to a
savings account. They both deposit $100 at
the beginning of each year. Fred’s account
earns simple interest at a rate of 4%.
Melissa‘s account earns interest compounded
annually at a rate of 4%.
5. After 5 years, how much more interest has
Melissa’s account earned than Fred’s account?
Give your answer in dollars and as a percent.
$1.67; about 8.4%
A riddle to solve
When invested at 5% simple interest, I earned my
owner $285.75. But I cannot remember how many
years it took. If I had been invested at 5% interest
compounded annually, I could have earned my
owner $350.09 after the same number of years. Of
course, after the first year, I would have gotten
my owner $31.75 from either bank. How much
money am I? How many years have I been in the
bank? $635; 9 years
How can you save money by investing small
amounts of money regularly?
Sample answer:
You can earn simple interest or compound
interest on the money you invest. If you make
regular deposits, the amount of interest earned
each year increases over time.