1. In two to three sentences explain the differences between compound interest and simple interest.

Simple interest is based on the principal amount of a loan or deposit whereas compound interest is based on the principal amount and the interest that accumulates on it in every period.

2. Design a compound interest problem that uses A = 500 (1.025)⁶. (Make up a question that uses the equation)

3. Determine if the following are simple interest, compound interest or neither.

i.Sue borrowed $5 000 at 10% compounded semi-annually, for four years. How much will she pay back after the term.

Answer:

ii.Frank wants to buy a car in three years but needs a down payment of $8 500. The bank he wants to invest the money with is offering to invest his money at 8%, compounded semi-annually. How much does he have to invest today?

Answer:___________________________

iii.Joe starts a bank account and initially deposits $500. He will receive the same amount of interest every month. How much interest is earned at the end of three years if the interest rate is 5.25%?

Answer:

4. Snoopy invests $270, 000 at an interest rate of 7.2%, compounded monthly. What will the investment be worth in four years?

b) Find the interest earned after four years.

5. Graham wishes to invest $3000 for one year.

a) How much INTEREST would the investment earn if the interest rate was 8%, compounded semi-annually?

b) How much INTEREST would the investment earn if the interest rate was 8%, compounded annually?

c) Which of the investment options resulted in the most interest for the investment? What conclusions can you draw about the amount of interest earned and the frequency of compounding?