Call Now to Set Up Tutoring:

(888) 888-0446

PSAT Math : How to find compound interest

Study concepts, example questions & explanations for PSAT Math

Create An Account

All PSAT Math Resources

10 Diagnostic Tests 421 Practice Tests Question of the Day Flashcards Learn by Concept

Example Questions

Example Question #1 : How To Find Compound Interest

On January 15, 2015, Philip deposited $10,000 in a certificate of deposit that returned interest at an annual rate of 8.125%, compounded monthly. How much will his certificate of deposit be worth on January 15, 2020?

Possible Answers:

$\$14,778.51$

$\$14,062.50$

$\$15,011.78$

$\$15,007.02$

$\$ 14,991.24$

Correct answer:

$\$ 14,991.24$

Explanation:

The formula for compound interest is

$A = A_{0}\left ( 1+ \frac{r}{N} \right )^{Nt}$

where $A_{0}$ is the initial investment, is the interest rate expressed as the decimal equivalent, is the number of periods per year the interest is compounded, is the number of years, and is the final value of the investment.

Set $A_{0} = 10,000, r = 0.08125, N = 12$ (monthly = 12 periods), and t = 5 , and evaluate :

$A = 10,000 \left ( 1+ \frac{0.08125}{12} \right )^{12 \cdot 5}$

$A \approx 10,000 \left ( 1.0067708\right )^{60}$

$A \approx 10,000 \cdot 1.499124$

$A \approx 1 4,991.24$

The CD will be worth $14,991.24.

Report an Error

Example Question #2 : How To Find Compound Interest

Money is deposited in corporate bonds which yield 6.735% annual interest compounded monthly, and which mature after ten years. Which of the following responses comes closest to the percent by which the value of bonds increases?

Possible Answers:

$90 \%$

$100 \%$

$85 \%$

$105 \%$

$95 \%$

Correct answer:

$95 \%$

Explanation:

The formula for compound interest is

$A = A_{0}\left ( 1+ \frac{r}{N} \right )^{Nt}$

In the given scenario, t = 10 , r = 0.06735 , and N = 12 (monthly); substitute:

$A = A_{0}\left ( 1+ \frac{0.06735}{12} \right )^{12 \cdot 10}$

$A \approx A_{0}\left ( 1+0.0056125 \right )^{12 0}$

$A \approx A_{0}\left ( 1 .0056125 \right )^{12 0}$

$A \approx A_{0} \cdot 1.9574$

This meas that the final value of the bonds is about 1.96 times their initial value, or, equivalently, 96% greater than their initial value. Of the given responses, 95% comes closest.

Report an Error

Example Question #3 : How To Find Compound Interest

Donna wants to deposit money into a certificate of deposit so that in exactly ten years, her investment will be worth $100,000. The interest rate of the CD is 7.885%, compounded monthly.

What should Donna's initial investment be, at minimum?

Possible Answers:

More information is needed to answer the question.

$\$ 46,815.46$

$\$55,912.78$

$\$45,569.99$

$\$45,802.62$

Correct answer:

$\$45,569.99$

Explanation:

The formula for compound interest is

$A = A_{0}\left ( 1+ \frac{r}{N} \right )^{Nt}$

Set A = 100,000, r = 0.07885, N = 12 (monthly = 12 periods), and t = 10 , and evaluate $A_{0}$ :

$100,000 = A_{0} \left ( 1+ \frac{0.07885}{12} \right )^{12 \cdot 10}$

$100,000 \approx A_{0} \left ( 1+0.0065708\right )^{120}$

$100,000 \approx A_{0} \left ( 1 .0065708\right )^{120}$

$100,000 \approx A_{0} \cdot 2.1944$

$A_{0} \approx 100,000 \div 2.1944$

$A_{0} \approx 45,569.99$

The correct response is $45,569.99.

Report an Error

Example Question #1 : How To Find Compound Interest

Tom invests $\$15$ , 000 in a savings account with an annual interest rate of $6\%$ . If his investment is compounded semiannually, how much interest does he earn after years?

Possible Answers:

$\$1390.91$

$\$1942.35$

$\$1758.45$

$\$1882.63$

$\$1841.31$

Correct answer:

$\$1882.63$

Explanation:

In order to find the interest earned, used the compound interest formula

$\text{Final Balance} = \text{Principal} \cdot (1+\frac{IR}{C})^{(\text{Time})(\text{C})}$

where represents the number of times the account is compounded each year, and represents the interest rate expressed as a decimal.

$=15,000\cdot(1+\frac{.06}{2})^{(2)(2)}$

$=15,000\cdot(1+.03)^{4}$

$=15,000\cdot(1.03)^{4}$

=16882.63

The account is worth $16882.63 after two years. Therefore Tom earns $1882.63 in interest.

16882.63-15000=1882.63

Report an Error

View PSAT Mathematics Tutors

Leonard
Certified Tutor

Florida State University, Bachelor of Science, Environmental Science.

View PSAT Mathematics Tutors

Paul
Certified Tutor

University of Phoenix-Albuquerque Campus, Bachelor of Science, Computer and Information Systems Security.

View PSAT Mathematics Tutors

Liban
Certified Tutor

Emory University, Bachelor of Science, Mathematics/Economics.

All PSAT Math Resources

10 Diagnostic Tests 421 Practice Tests Question of the Day Flashcards Learn by Concept

Popular Subjects

SSAT Tutors in Boston, French Tutors in Chicago, Reading Tutors in Atlanta, Biology Tutors in San Francisco-Bay Area, Computer Science Tutors in Houston, Physics Tutors in Dallas Fort Worth, Reading Tutors in Philadelphia, LSAT Tutors in Los Angeles, Math Tutors in Houston, Calculus Tutors in Los Angeles

Popular Courses & Classes

ISEE Courses & Classes in Philadelphia, MCAT Courses & Classes in Boston, ACT Courses & Classes in Los Angeles, GRE Courses & Classes in Phoenix, GRE Courses & Classes in San Diego, Spanish Courses & Classes in Boston, GRE Courses & Classes in Seattle, ISEE Courses & Classes in Boston, ACT Courses & Classes in Chicago, LSAT Courses & Classes in Washington DC

Popular Test Prep

SAT Test Prep in Miami, SAT Test Prep in Houston, MCAT Test Prep in San Diego, GRE Test Prep in Miami, LSAT Test Prep in Dallas Fort Worth, GMAT Test Prep in Boston, GRE Test Prep in Phoenix, ISEE Test Prep in Philadelphia, LSAT Test Prep in Atlanta, ACT Test Prep in Philadelphia

DMCA Complaint

If you believe that content available by means of the Website (as defined in our Terms of Service) infringes one or more of your copyrights, please notify us by providing a written notice (“Infringement Notice”) containing the information described below to the designated agent listed below. If Varsity Tutors takes action in response to an Infringement Notice, it will make a good faith attempt to contact the party that made such content available by means of the most recent email address, if any, provided by such party to Varsity Tutors.

Your Infringement Notice may be forwarded to the party that made the content available or to third parties such as ChillingEffects.org.

Please be advised that you will be liable for damages (including costs and attorneys’ fees) if you materially misrepresent that a product or activity is infringing your copyrights. Thus, if you are not sure content located on or linked-to by the Website infringes your copyright, you should consider first contacting an attorney.

Please follow these steps to file a notice:

You must include the following:

A physical or electronic signature of the copyright owner or a person authorized to act on their behalf; An identification of the copyright claimed to have been infringed; A description of the nature and exact location of the content that you claim to infringe your copyright, in \ sufficient detail to permit Varsity Tutors to find and positively identify that content; for example we require a link to the specific question (not just the name of the question) that contains the content and a description of which specific portion of the question – an image, a link, the text, etc – your complaint refers to; Your name, address, telephone number and email address; and A statement by you: (a) that you believe in good faith that the use of the content that you claim to infringe your copyright is not authorized by law, or by the copyright owner or such owner’s agent; (b) that all of the information contained in your Infringement Notice is accurate, and (c) under penalty of perjury, that you are either the copyright owner or a person authorized to act on their behalf.

Send your complaint to our designated agent at:

Charles Cohn Varsity Tutors LLC
101 S. Hanley Rd, Suite 300
St. Louis, MO 63105

Or fill out the form below:

Do not fill in this field

Contact Information

* Full legal name

Company name

* Phone number

* Email address

Address

* Address1

Address2

* City

* State

* Zipcode

* Country

Complaint Details

* URL of copyrighted work (where your original material is located)

* Please describe the copyrighted work so that it may be easily identified

I am the owner, or an agent authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.

I have a good faith belief that the use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.

This notification is accurate.

I acknowledge that there may be adverse legal consequences for making false or bad faith allegations of copyright infringement by using this process.

* Signature (your digital signature is legally binding)

HIGH SCHOOL

GRADUATE SCHOOL

K-8

Search 50+ Tests

math tutoring

science tutoring

foreign languages

elementary tutoring

other

Search 350+ Subjects

PSAT Math : How to find compound interest

Study concepts, example questions & explanations for PSAT Math

All PSAT Math Resources

Example Questions

Example Question #1 : How To Find Compound Interest

Example Question #2 : How To Find Compound Interest

Example Question #3 : How To Find Compound Interest

Example Question #1 : How To Find Compound Interest

All PSAT Math Resources

Report an issue with this question

DMCA Complaint

Contact Information

Address

Complaint Details

Email address:
Your name:
Feedback: