GRE Math : How to find compound interest

Example Questions

Example Question #3 : 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?

Explanation:

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 : Pattern Behaviors In Exponents

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?

Explanation:

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 #1 : Pattern Behaviors In Exponents

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?

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: