Algebra II : Interest Equations
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Example Questions
Example Question #1 : Interest Equations
Catherine invests $3500 in an investment account. The account earns 10% interest, compounded quarterly. After 5 years, how much money will she have?
The formula for calculating the future value of an interest earning account is
where
The problem asks for the amount of money in the account after 5 years, with 10% interested compounded four times per year (quarterly).
Plug in the given quantities and simplify:
Example Question #2 : Interest Equations
Felicia put money in a saving account with a 5% interest rate, compounded annually. After five years, she had $10,000. How much was her initial investment?
The formula for finding the future value of an investment is
where
Plug in the given numbers and solve for the present value:
Example Question #1 : Interest Equations
Jamie deposits $5000 into an account at ABC bank. The account will earn a 4% interest rate compounded yearly. Jamie would like to withdraw the accumulated amount after 5 years and close the account. How much money would Jamie withdraw after 5 years? (Round your answer to the nearest dollar)
Initial amount = 5000
The account earns 4% compounded yearly ===> Each $1.00 will grow into $1.04.
Growth rate = 1.04
Jamie will withdraw the money after 5 years. Since the interest is compounded yearly, the number of periods is equal to the number of years the money will be in the account.
number of periods = 5
From the above information, we can calculate the amount accumulated (or final amount) after 5 years using the following formula:
final amount = initial amount * (growth rate)number of periods
Example Question #4 : Interest Equations
Round the answer to two decimals.
Anthony put 
How much does he have in his savings account after 
The formula for computing interest is:
Beginning Amount x ((1 + rate)^number of years) = Ending Amount After number of years
Make sure to convert the rate from percent to number: 3% = 0.03
So the answer is
Example Question #1 : Interest Equations
For coninuous compound interest:
Where
If an initial deposit of 
None of the other answers.
Using the equation for continuous compound interest and the given information, we get
Example Question #6 : Interest Equations
Remember
If an account has a starting principle P = $5,000, an interest rate r = 12% or 0.12, compounded annually, how much money should there be after five years? Assume no money has been added or taken out of the account since it was opened.
P = Initial deposit = 5000
r = Interest rate = 0.12
n = Number of times interest is compounded per year = 1
t = Number of years that have passed = 5
Round to the nearest cent or hundredth is 
Example Question #7 : Interest Equations
Julio invests $5000 into an account with a 2.5% interest rate, compounded quarterly. What is his account balance after 1 year (rounded to the nearest cent)?
To determine Julio's account balance, we must use the interest formula given below:
where P is his principal (initial) investment, r is the interest rate (as a decimal), n is the number of times the interest is compounded, and t is the amount of time elapsed.
Plugging in all of our given information into the above formula - knowing that quarterly means four times a year - we get
Example Question #1 : Interest Equations
Martisha invests $2000 into an account with continuously compounded interest. The account has an interest rate of 2.5%. Find the balance of the account after 2 years, rounded to the nearest cent.
To find the balance, B, of a continuously compounded interest account after a certain amount of time, we must use the following formula:
Plugging in all of the given information, we get
which rounded becomes $2102.54
Example Question #9 : Interest Equations
How long will it take for Nikki to triple her initial investment into a continuously compounded interest account with an interest rate of 1.9%?
We are not given enough information to solve the problem
57.82 years
0.214 years
0.5782 years
57.82 years
The formula to find the balance, B, of a continuously compounded interest account with interest rate, r, after a certain time, t, is given by
To solve this problem, we need to know only the initial investment (P), our final balance (three times P) and the interest rate (expressed as a decimal), 0.019.
Plugging in our known information into the formula for continuously compounded interest, we get
We now solve for t:
Exponentiating both sides allows us to get rid of the exponential:
Example Question #311 : Exponents
Sheila wants to double her initial investment into a compounded interest account, with an interest rate of 4%. How long will this take, if the interest is compounded annually?
0.52 years
1.923 years
0.0565 years
17.67 years
17.67 years
To determine the amount of time needed to double the initial investment - P - into a compound interest account, we simply plug in our given information into the formula:
where B is the balance, P is the initial investment, r is the interest rate (as a decimal), n is the number of times the interest is compounded, and t is the time elapsed.
Now, because we are doubling P, our balance B becomes two times P:
Now, we can solve for P:
To bring the time variable down from being an exponent, we take the logarithm of both sides (common or natural):
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