Section 5.1 Compound Interest
Simple Interest Formulas:
Interest: I = P rt
Accumulated amount: A = P (1 + rt)
Here P is the principal (money you start out with), r is the interest rate (as a decimal), and t is the
time (in years).
1. Find the accumulated amount at the end of 9 months on a $1800 bank deposit paying simple
interest at a rate of 9%/year. (Round answer to the nearest cent.)
2. A bank deposit paying simple interest at the rate of 6%/year grew to a sum of $1300 in 8 months.
Find the principal. (Round answer to the nearest cent.)
3. Determine the simple interest rate at which $2400 will grow to $2495 in 5 months. (Round answer
to two decimal places.)
, Compounded Interest Formulas: Accumulated Amount
A = P (1 + i)n
r
where i = m
, n = mt, and
A = Accumulated amount at the end of n conversion periods.
P = Principal.
r = Nominal interest rate per year.
m = Number of conversion periods per year.
t = Term (number of years)
Calculator Functions
TVM Solver: We can use the TVM Solver on our calculator to solve problems involving com-
pound interest. To access the Finance Menu, you need to press APPS , 1 , and then 1 again.
(Please note that if you have a plain TI-83, you need to press 2ND , x 1 to access the Finance
Menu). Below we define the inputs on the TVM Solver:
N = mt =the total number of compounding periods
I% = interest rate (as a percentage)
P V = present value (principal amount). Entered as a negative number if invested, a positive
number if borrowed.
P M T = payment amount
F V =future value (accummulated amount)
P/Y = C/Y = m =the number of compounding periods per year.
Move the cursor to the value you are solving for and hit ALPHA and then ENTER.
4. Find the present value of $40, 000 due in 4 years at the given rate of interest. (Round answer to
the nearest cent.)
10%/year compounded daily.
N=
I% =
PV =
P MT =
FV =
P/Y = C/Y =
2 Fall 2017, Maya Johnson
Simple Interest Formulas:
Interest: I = P rt
Accumulated amount: A = P (1 + rt)
Here P is the principal (money you start out with), r is the interest rate (as a decimal), and t is the
time (in years).
1. Find the accumulated amount at the end of 9 months on a $1800 bank deposit paying simple
interest at a rate of 9%/year. (Round answer to the nearest cent.)
2. A bank deposit paying simple interest at the rate of 6%/year grew to a sum of $1300 in 8 months.
Find the principal. (Round answer to the nearest cent.)
3. Determine the simple interest rate at which $2400 will grow to $2495 in 5 months. (Round answer
to two decimal places.)
, Compounded Interest Formulas: Accumulated Amount
A = P (1 + i)n
r
where i = m
, n = mt, and
A = Accumulated amount at the end of n conversion periods.
P = Principal.
r = Nominal interest rate per year.
m = Number of conversion periods per year.
t = Term (number of years)
Calculator Functions
TVM Solver: We can use the TVM Solver on our calculator to solve problems involving com-
pound interest. To access the Finance Menu, you need to press APPS , 1 , and then 1 again.
(Please note that if you have a plain TI-83, you need to press 2ND , x 1 to access the Finance
Menu). Below we define the inputs on the TVM Solver:
N = mt =the total number of compounding periods
I% = interest rate (as a percentage)
P V = present value (principal amount). Entered as a negative number if invested, a positive
number if borrowed.
P M T = payment amount
F V =future value (accummulated amount)
P/Y = C/Y = m =the number of compounding periods per year.
Move the cursor to the value you are solving for and hit ALPHA and then ENTER.
4. Find the present value of $40, 000 due in 4 years at the given rate of interest. (Round answer to
the nearest cent.)
10%/year compounded daily.
N=
I% =
PV =
P MT =
FV =
P/Y = C/Y =
2 Fall 2017, Maya Johnson
