Financial Literacy Honors 2.04 Interest Rates and Inflation Answers

2.04 Put your Money Where your Mouth Is




Simple Interest Choice Compound Interest Choice




Step One: Calculate the Interest Earned

Simple Interest Compound Interest
Year One 5000*3% = $150 5000*3% = $150
Multiply the amount deposited by the interest rate
Total $5150 Total $5150
Year Two 5000*3% = $150 5150*3% = $154.5
For simple interest, multiply the amount deposited
by the interest rate. For compound interest, Total $5300 Total $5304.5
multiply the sum of the amount deposited and the
year one interest by the interest rate.
Year Three 5000*3% = $150 5304.5*3% = $159.14
For simple interest, multiply the amount deposited
by the interest rate. For compound interest, Total $5450 Total $5463.64
multiply the sum of the amount deposited, the year
one interest, and the year two interest by the
interest rate.


Step Two: Calculate the taxes on the Interest earned
SUM: Find the sum of the interest earned in years one, two, and three for the simple interest:
Year 1 $150 + Year 2 $150 + Year 3 $150 = $450