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## Example Questions

### Example Question #1 : How To Find Compound Interest

A five-year bond is opened with in it and an interest rate of %, compounded annually. This account is allowed to compound for five years. Which of the following most closely approximates the total amount in the account after that period of time?

**Possible Answers:**

**Correct answer:**

Each year, you can calculate your interest by multiplying the principle () by . For one year, this would be:

For two years, it would be:

, which is the same as

Therefore, you can solve for a five year period by doing:

Using your calculator, you can expand the into a series of multiplications. This gives you , which is closest to .

### Example Question #1 : How To Find Compound Interest

If a cash deposit account is opened with for a three year period at % interest compounded once annually, which of the following is closest to the positive difference of the interest accrued between the last two years and the first two years?

**Possible Answers:**

**Correct answer:**

It is easiest to break this down into steps. For each year, you will multiply by to calculate the new value. Therefore, let's make a chart:

After year 1: ; Total interest:

After year 2: ; Let us round this to ; Total interest:

After year 3: ; Let us round this to ; Total interest:

Thus, the positive difference of the interest from the last period and the interest from the first period is:

### Example Question #2 : How To Find Compound Interest

Jack has , to invest. If he invests two-thirds of it into a high-yield savings account with an annual interest rate of , compounded quarterly, and the other third in a regular savings account at simple interest, how much does Jack earn after one year?

**Possible Answers:**

**Correct answer:**

First, break the problem into two segments: the amount Jack invests in the high-yield savings, and the amount Jack invests in the simple interest account (10,000 and 5,000 respectively).

Now let's work with the high-yield savings account. $10,000 is invested at an annual rate of 8%, compounded quarterly. We can use the compound interest formula to solve:

Plug in the values given:

Therefore, Jack makes $824.32 off his high-yield savings account. Now let's calculate the other interest:

Add the two together, and we see that Jack makes a total of, off of his investments.

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