Precalculus : Compound Interest Problems

Example Questions

Example Question #1 : Exponential Equations And Inequalities

If you invest into a savings account which earns an interest rate per year, how much would it take for your deposit to double?        Explanation:

The equation of the value for this problem is .

We can divide by R to get .

We want to solve for n in this case, which is the amount of years. If we use the natural log on both sides and properties of logarithms, we get .

If we solve for n, we get Example Question #1 : Compound Interest Problems

If you deposit into a savings account which earns a yearly interest rate, how much is in your account after two years?     Explanation:

Since we are investing for two years with a yearly rate of 5%, we will use the formula to calculate compound interest. where is the amount of money after time. is the principal amount (initial amount). is the interest rate. is time.

Our amount after two years is: Example Question #1 : Compound Interest Problems

If you deposit into a savings account which compounds interest every month, what is the expression for the amount of money in your account after years if you earn a nominal interest rate of compounded monthly?     Explanation:

Since is the nominal interest rate compounded monthly we write the interest term as as it is the effective monthly rate.

We compound for years which is months. Since our interest rate is compounded monthly our time needs to be in the same units thus, months will be the units of time.

Plugging this into the equation for compound interest gives us the expression:   Example Question #1 : Compound Interest Problems

John opens a savings account and deposits into it. This savings account gains interest per year. After years, John withdraws all the money, and deposits it into another savings account with interest per year. years later, John withdraws the money.

How much money does John have after this year period? (Assume compound interest in both accounts)      Explanation:

Plugging our numbers into the formula for compound interest, we have: .

So John has about after the first three years.

After placing his money into the other savings account, he has after more years.

So John has accumulated about .

Example Question #1 : Exponential Equations And Inequalities

Suppose you took out a loan years ago that gains interest. Suppose that you haven't made any payments on it yet, and right now you owe on the loan. How much was the loan worth when you took it out?     Explanation:

The formula for the compund interest is as follows: By substuting known values into the compound interest formula, we have: .

From here, substitute known values. Divide by  Example Question #1 : Compound Interest Problems

How many years does it take for to grow into when the is deposited into a savings account that gains annual compound interest? years years years years

Explanation:

The correct answer is about years.

To find the number of years required, we solve the compound interest formula for .

The formula is as follows: Substitute known values. Divide by . Take the natural log of both sides. Use the log power rule. Divide by .  use a calculator to simplify.

All Precalculus Resources 