Compound Interest Problems With Detailed Solutions
Compound Interest Problems With Detailed Solutions
Detailed Solutions
Compound interest problems with answers and solutions are presented.
annually. How much is in the account after one year, two years and three years?
2. What would $1000 become in a saving account at 3% per year for 3 years when the
interest is not compounded (simple interest)? What would the same amount become
annually. Find the total amount A after t years in each saving plan and graph both of
them in the same system of rectangular axes. Use the graphs to approximate the
withdrawn at the end of the two years and placed in another bank at the rate of 5%
compounded annually for 4 years. What is the balance in the second account after
the 4 years.
withdrawn and placed in another bank at the rate of 5% compounded daily for 4
years. What is the balance in the second account after the 4 years. (compare with
for 4 years. What is the balance in the second account after the 4 years. (compare
8. What principal you have to deposit in a 4.5% saving account compounded monthly
annually. How long does it take for the amounts in the two accounts to be equal?
10. A first saving account pays 5% compounded annually. A second saving account
long term?
11. What interest rate, compounded annually, is needed for a principal of $4,000 to
the total amounts in both accounts be equal? When will the total amount in the
second accounts be 50% more than the total amount in the second account?
deposit $200, in this type of account, at the start of each quarter starting with the first
deposit on the first of January and the fourth deposit on the first of October. What is
14. An amount of $1,500 is invested for 5 years at the rates of 2% for the first two years,
5% for the third year and 6% for the fourth and fifth years all compounded
When interest is compounded annually, total amount A after t years is given by: A =
P(1 + r) t, where P is the initial amount (principal), r is the rate and t is time in years.
2. Solution
3. Solution
Graphs below are those of the compounded and not compounded interests. The
compounded interest doubles in about 14 years while the non compounded (simple)
4. Solution
Compounded n times a year and after t years, the total amount is given by: A = P(1
+ r/n) n t
5. Solution
Annual compounding
6. Solution
First two years: A = P(1 + r / 365) 365 t = 1200(1 + 0.04 / 365) 365 × 2 = $1299.94
Last four years : A = P(1 + r / 365) 365 t = 1299.94 (1 + 0.05 / 365) 365 ×4 = $1587.73
7. Solution
8. Solution
P initial balance to find and final balance A known and equal to $10,000.
9. Solution
A 1 = A 2
Solve for t.
10. Solution
From graphs below, at equal rates, the continuous compounding earns more that the
11. Solution
A = P(1 + r) t = 4,500
4000(1 + r) 10 = 4,500
(1 + r) 10 = 4500 / 4000
12. Solution
A 1 = 1000 e 0.02 t
A 2 = 500 e 0.08 t
A 1 = A 2 gives
2 = e 0.06 t
0.06 t = ln 2
A 2 = 1.5 A 1
e 0.08 t - 0.02 t = 3
0.06 t = ln 3
t ? 18.5 years
13. Solution
A = P(1 + r/n) n t
Fourth quarter deposit, t = 1/4 of 1 year : A 4 = 200 (1 + 0.04 / 4)e 4 × 1/4 = $202
14. Solution
A = P e r t
End of fifth year (last two years): A 3 = A 2 e 0.06 × 2 = 1500 e 0.02 × 2 + 0.05 × 1 + 0.06 ×
2 = $1850.51
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