BUSINESS 124 Section 6-2 - Interest-Blank-1/Sec 6.2 – Simple and Compound Interest Decision Making in Finance

1. James is borrowing $2000 from his employer and will pay it back at the end of 3 years. The employer lending the money asks that James pay simple interest of 3% annually. Using the simple interest formula, I=P∙ R∙T , determine how much interest James will have to payback in addition to the $2000 principal amount. I = P * R * T I = (2000)(.03)(3) payment: Principle, Rate as in decimal, Time in years = $180 $2180 2. Ryan is investing $9000 in a CD at a bank. If the bank uses simple interest and the bank pays 3.1% annually, how much will the CD be worth in total at the end of 5 years when the CD matures? I = (9000)(.031)(5) CD is worth = 9000 + 1395 I = 1395 = $10, 395 3. Jim put his $15,000 into a high yields savings account that pays 2.8% annually. a. The account is compounded annually. If the bank uses a compound interest formula, how much will the account be worth in 5 years if left untouched? Use the compound interest formula, P=Po ( 1+ r n ) nt . = (15000)(1 + .028/1)(15) =$17, 220 Initial principle, rate as decimal, number of computers per year, time b. Jim saw that other banks offered the same rates but compounded the interest more often. Consider if he still put $15,000 into a savings account for 5 years that provided 2.8% annually but compounded it i