Simple and Compound Interest

8.
6 Problem
Solving:
Compound
Interests
Focus 8 Learning Goal – (HS.N-RN.A.1 & 2, HS.A-SSE.B.3, HS.A-CED.A.2, HS.F-IF.B.4, HS.F-
IF.C.8 & 9, and HS.F-LE.A.1) = Students will construct, compare and interpret
linear and exponential function models and solve problems in context

with each model.
4 3 2 1 0
In addition to level 3, Students will construct, compare, and Students will Students will Even with help, the
students make interpret linear and exponential construct, compare, have partial student is not
connections to other function models and solve problems in and interpret linear success at a 2 successful at the
content areas and/or context with each model. function models and or 3, with help. learning goal.
contextual situations - Compare properties of 2 functions solve problems in
outside of math. in different ways (algebraically, context with the
graphically, numerically in tables, model.
verbal descriptions) - Describe a situation
- Describe whether a contextual where one quantity
situation has a linear pattern of changes at a constant
change or an exponential pattern of rate per unit interval as
change. Write an equation to model compared to another.
it.
- Prove that linear functions change
at the same rate over time.
- Prove that exponential functions
change by equal factors over time.
- Describe growth or decay
situations.
- Use properties of exponents to
simplify expressions.
Simple interest: I=prt
I = interest
p = principal: amount you start with
r = rate of interest
t= time in years
If you invest $3,000 at 5% for one year, how much will you make for the year?
I = prt
= 3000  0.05  1
= 150
You made $150 for the year.
Compound interest formula:
A = p(1+r)t
A = balance p = principal
r = rate t = time in years
Find the total amount in your account if you
start with $750 at 7.5% interest compounded
annually for 2.5 years.
A = p(1+r)t
= 750(1+0.075)2.5
= 750(1.075)2.5 (use a calculator here!)
= $898.63
How much should you invest at 7%
compounded annually to have $200
after 5 years?
A = p(1+r)t (Plug in what you know.)
200 = p(1.07)5 (get p alone, then use a calculator.)

200 = p
(1.07)5
142.60= p
If you put $100 in the bank at 4%
interest compounded annually and
leave it until you are 60, how much
money will you have?
A = p(1+r)t
= 100(1.04)46 (This assumes you are currently 14)

= 607.48
What about a mutual fund that pays
10% interest compounded annually?
A = p(1+r)t
= 100(1.10)46
= 8017.95
LESSON
13.2 Calculating and Comparing

Simple and Compound Interest
How do you calculate simple and compound interest?

ADDITIONAL EXAMPLE 1
Each year, Monica deposits $200 into her savings
that earns simple interest at an annual rate of
3.5%. Make a table to show how the interest
grows over three years if she makes no
withdrawals.
On each birthday, Eric deposits $200 into his
savings that earns interest at a rate of 3%
compounded annually. Make a table to show how
the interest grows over three years if he makes
no withdrawals.
Taylor deposits $150 in each of two savings
accounts. Both have an annual interest rate of 4%.
No additional deposits or withdrawals are made.
One account earns simple interest, and the
other account earns interest compounded
annually. Which account will earn more interest
after 20 years? How much more?
the compound interest account;
13.2 LESSON QUIZ
7.13.E
For 1–4, assume that no additional deposits

or withdrawals are made.
1. Each year on the same day, Kyle deposits $250
into a savings account that earns simple interest
at an annual rate of 3.5%. How much interest
does the account earn after one year? after
10 years?
2. Eliot deposits $500 into a savings account that
earns interest at a rate of 3% compounded
annually. What is the closing balance at the
end of the first year? the second year? the fifth
year?
3. Sandra deposits $400 in a savings account with
an annual simple interest rate of 5%. Delia
deposits $400 in a savings account with an
annual compound interest rate of 5%. How
much more interest does Delia’s account earn
than Sandra’s after ten years?
4. Rajeev deposits $800 in a savings account earning
interest at a rate of 4% compounded annually.
How much is in his account after five years?
How do you calculate simple and compound interest?
Sample answer:
For simple interest, find the product of the amount,
the interest rate (as a decimal), and the time
(expressed in years). For compound interest, use a
formula and substitute known values to compute.

Simple and Compound Interest

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8.

linear and exponential function models and solve problems in context

200 = p(1.07)5 (get p alone, then use a calculator.)

= 100(1.04)46 (This assumes you are currently 14)

13.2 Calculating and Comparing

How do you calculate simple and compound interest?

For 1–4, assume that no additional deposits

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