Name: ________________________ MEL3E1

Unit 4: Saving & Investing

(Simple & Compound Interest Calculations)

Topic Mark

4.1 Simple Interest

4.2 Solving for P, r, or t

4.3 Simple Interest – Effect of Changing P, r, or t

4.4 Compound Interest

4.5 Compound Interest on a Graphing Calculator

4.6 Effect of Compounding, Interest Rate, and Time on Future

Value

4.7 Simple & Compound Interest Review

 4.1 Simple Interest
Josh receives $600 for his birthday. He wants to save for a car, so he deposits the money into an
account that pays 5% interest per year.
a) How much interest will Josh earn in 1 year?
5% of $600 =
b) How much interest will he earn in:
2 years? 5 years? 10 years?

c) How much money will Josh have in his account after 10 years?
Amount =

In order to calculate the interest we multiplied 3 values

Interest = ____________________ X ___________________ X _________________

The Simple Interest formula is:

Where Rate is converted to a ______________
I = Prt Time is in __________________ I=Prt
Examples
1. Express the following in decimal form:
a) 12% b) 7% c) 6.8% d) 8½% d) 2¼%

2. Express the following times in years (in decimal form).

a) 8 months b) 3 months c) 22 weeks d) 6½ years d) 170 days

3. Calculate the interest earned on each investment

Rate Time
Principal Interest
% Decimal Various Units Years

$1300 3.5% 4.5 years

$500 1.25% 15 months

$750 0.82% 432 days

$20 000 7¼% 140 weeks

Page 1
Practice
1. Express the following in decimal form:
a) 2% b) 14% c) 5.1% d) 6¼% d) 5½%

2. Express the following times in years (in decimal form).

a) 9 months b) 2 months c) 40 weeks d) 3½ years d) 75 days

3. Calculate the interest earned on each investment

Rate Time
Principal Interest
% Decimal Various Units Years

$2500 11% 9 months

$300 4% 37 weeks

$825 1.04% 250 days

$12 000 3.7% 8 weeks

4. Christy invests $4500 in a 3-year GIC. The interest rate is 5% per year.
a) How much interest does she earn?

b) How much money will she have altogether (the future amount)?

5. Kari buys a $3000 Canada Savings Bond on May 15. The interest rate is 1.65%.
a) Calculate the interest that she will be paid 1 year after buying the bond.

b) Kari decides to cash the bond early, on October 15 of the same year. How much interest
will she be paid?

c) Calculate the interest and future amount of the bond if she keeps it for 5 years.

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6. Samantha borrows $2000 to take a trip. The rate of interest is 12% per
year simple interest. The loan is to be paid in 90 days. How much
interest is due?

7. Steve borrows $250 for one month from a finance company that charges an interest rate of
23% per year. What amount must he pay at the end of the month?

8. Tate borrows $12000 from his uncle to start a business. He agrees to pay 4.5% simple
interest per year.
a) Calculate the interest he will have to pay over 10 years.

b) How much will he have to pay back altogether?

9. Jake buys a 5-year GIC for $2000. It pays 1.4% interest per year. How much interest will he
earn?

10. Joseph borrows $40000 to buy a used tank. He agrees to pay the money back including
2.5% simple interest per year. How much will he owe altogether after 30 months?

11. Eddy borrows $5000 for a trip to Europe. He agrees to pay his grandmother an annual
interest rate of 1.8%. How much interest will he owe if he pays her back after 7 months?

Scrambled Answers: 0.0082 0.0104 0.0125 0.02 0.0225 0.035 0.037 0.04 0.051 0.055 0.0625 0.068 0.07 0.0725 0.085
0.11 0.12 0.14 0.153846 0.16667 0.2055 0.25 0.4231 0.46575 0.6667 0.68493 0.711538 0.75 0.76923 1.18356 1.25
2.6923 3.5 4.5 5.88 6.5 7.28 7.81 8.54 20.63 30 49.50 52.50 59.18 60 68.31 140 150 204.75 206.25 247.50
254.79 300 675 3247.50 3903.85 5175 5400 17400 42500
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 4.2 Solving for P, r, or t
The simple interest formula can be rearranged so that we can solve for
one of the other variables. The triangle at the right helps us to remember
the other formulas. Cover what you need, and the formula appears.
I
P r t
1. Gerald’s $3000 investment paid $270 at the end of one year. What was the simple interest
rate?

2. An investment of $1200 earned $22.19 in interest at 7.5% per year. How long was the
investment held…
a) in years? b) in days?

3. Sandeep earned $96.25 on an investment that he held for 5.5 years at 3.5% per year. How
much was the initial investment?

4. Josh borrowed $200 for a trip to see panda bears at the zoo. He paid
the money back 3 months later with $15 interest. What was the simple
interest rate?

5. Tanner bough a GIC for $4000. It paid simple interest at a rate of 1.8% per year. Tanner
received $4576 when he cashed it in.
a) How much interest did he earn? b) How many years did he wait to cash it in?

6. Tyra cashed in a Canada Savings Bond after 3 years and received $112.50 in interest. The
simple interest rate was 1.5%. How much did she pay for the CSB?

Scrambled Answers: 0.247 8 9 30 90 500 576 2500

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 4.3 Simple Interest - Effect of Changing P, r, or t
Brandon plans to invest some of his money in GIC’s for a 5-year term. The interest rate offered is
2% per year.

Changing the Principal

a) Calculate the amount of interest he would earn for each investment.
Rate Time
Principal Interest
% Decimal Years
$1000 2% 5
$2000 2% 5
$3000 2% 5
$4000 2% 5

b) When he invests an extra $1000, the amount of interest goes up by ______________.

c) When principal doubles, the amount of interest _______________.

Changing the Rate

a) Calculate the amount of interest he would earn after 5 years on $1000 at each interest rate.
Rate Time
Principal Interest
% Decimal Years
$1000 2% 5
$1000 3% 5
$1000 4% 5
$1000 5% 5

b) Each time the rate goes up by 1%, the amount of interest goes up by ______________.
c) When the rate doubles, the amount of interest _______________.

Changing the Time

a) Calculate the amount of interest he would earn on $1000 at 2% for each length of time.
Rate Time
Principal Interest
% Decimal Years
$1000 2% 1
$1000 2% 2
$1000 2% 3
$1000 2% 4

b) For each extra year the amount of interest goes up by ______________.

c) When the length of time doubles, the amount of interest _______________.
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 4.4 Compound Interest
When calculating compound interest, the ______________is added to your principal. During the
next period, interest is calculated based on the new principal.

Interest may be added more than once per year, as shown in the table below.

Compounding Periods
Meaning # of Times Interest is Added Time For Each Interest
(# of rows in table) Calculation in Years
(t)
Annual _______ per year # years
Semi-annual _______ times per year # years X _____
Quarterly _______ times per year # years X _____
Monthly _______ times per year # years X _____

Example: Megan invests $2000 at 8% per year compounded semi-annually. Calculate the
compounded amount after 3 years.

# of times interest is added = _________. Time for each interest calculation t =_____ years.
Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

Interest Comparison
Simple Interest Compound Interest
 Interest is added to the ______________.
 Principal ________ _____ ________
 Interest is based on a larger ___________
 Interest is ______ __________ each year. each year.
 Growth is ______________.  Growth is _____________.

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 Compound Interest Practice

1. Julia deposits $1000 in an account that pays 10%/a interest compounded annually.
Complete the table to determine how much is in the account after 3 years.
# of times interest is added = ________. Time for each interest calculation t =_____ years.
Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

$1210

2. Jacob deposits $2000 into an account that pays interest at a rate of 10%/a compounded
quarterly. Calculate the amount in the account after one year.
# of times interest is added = ________. Time for each interest calculation t =_____ years.
Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

$2101.25

3. Brianne invests $2000 at 8%/a. Calculate the amount in the account after 2 years if the
interest is compounded annually, semi-annually, or quarterly.
a) Compounded Annually # rows = _____. t =_____ years.
Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

b) Compounded Semi-Annually # rows = _____. t =_____ years.

Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

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 c) Compounded Quarterly # rows = _____. t =_____ years.
Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

$2080.80

$2208.16

d) Which type of compounding results in the greatest amount of interest being earned?

4. Calculate the amount of each of the following investments.

a) $1000 is invested for 2 years at 8%/a compounded annually.

Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

b) $2000 is invested for 3 years at 9%/a compounded semi-annually.

Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

$2282.33

Final Amounts: 1166.40 1331 2207.62 2332.80 2339.72 2343.32 2530.64 2604.52
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 4.5 Compound Interest on a Graphing Calculator

Note: The future value will have a negative sign. Just ignore this!

Examples
a) Calculate the future value of $5000 invested at 8% compounded semi-annually for 10 years.

To Solve
Put the cursor on FV
Press

b) Determine the future value of $100 invested c) Determine the future value of $1000 invested
at 0.5% compounded monthly for 10 years. at 12% compounded quarterly for 40 years.
N= N=
I% = I% =
PV = PV =
PMT = PMT =
FV = FV =
P/Y = P/Y =
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN

d) Tanner borrows $500 today at 5% e) Joseph puts $2500 in an account that pays
compounded semi-annually for 8 years. 1.5% interest compounded annually.
How much will he owe after 8 years? Determine the amount in his account after 12
years.
N= N=
I% = I% =
PV = PV =
PMT = PMT =
FV = FV =
P/Y = P/Y =
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN

f) Calculate the amount of interest Tanner g) Calculate the amount of interest Joseph
paid in part d. earned in part e.

Scrambled Answers: $105.13 $242.25 $489.05 $742.25 $2989.05 $10,955.62 $113,228.55

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Practice
Use a graphing calculator to solve the following problems.
1. Phillip puts $4000 in a savings account that pays 6. Jake borrows $3500 at a rate of 3% interest
1.65% interest compounded monthly. compounded quarterly.
a) How much will be in the N= a) How much will he owe N=
account after 5 years? I% = after 7 years? I% =
PV = PV =
PMT = PMT =
b) Calculate how much FV = b) How much interest FV =
he earns in interest. does he pay? P/Y =
P/Y =
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN
2. Charlene invests $2000 in a bond that pays 2.5% 7. When Josh was born, his
interest compounded quarterly. grandfather put $5000 in a N=
bank account for his I% =
a) How much will be in the N=
college education. The PV =
account after 2 years? I% = account earns 6.5% PMT =
PV = compounded monthly.
PMT = FV =
b) Calculate how much FV = How much will the P/Y =
she earns in interest. investment be worth in 18 C/Y =
P/Y =
years? PMT: END BEGIN
C/Y =
PMT: END BEGIN
3. Matt invests $6000 in a GIC that pays 0.85% interest 8. Christy has $875.83 in her
compounded semi-annually. savings account. The N=
account pays 4.5% I% =
a) How much will be in the N= compounded monthly. PV =
account after 4 years? I% =
How much interest will she
PMT =
PV = FV =
earn in 6 months?
b) Calculate how much
PMT = P/Y =
he earns in interest. FV = C/Y =
P/Y = PMT: END BEGIN
C/Y =
PMT: END BEGIN
4. Cody borrows $1000 at a rate of 8% interest 9. Eddy borrowed $4250 at a rate of 4% interest
compounded monthly. compounded quarterly.
N= N=
a) How much will he owe I% = a) How much did he owe I% =
after 2 years? after 18 months?
PV = PV =
PMT = PMT =
b) Calculate how much FV = b) Calculate how much FV =
interest he pays. P/Y = interest he paid. P/Y =
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN
5. Tate puts $650 in an account that pays 1.8% interest 10. Hayley invests $2500 in a GIC that pays 1.25%
compounded semi-annually. interest compounded annually.
a) How much will be in N= a) How much will be in the N=
the account after 6 ½ I% = account after 10 years? I% =
years? PV = PV =
PMT = PMT =
FV = b) How much interest will
b) How much interest will she have earned? FV =
P/Y = P/Y =
he earn?
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN
Scrambled Answers: $19.89 $80.30 $102.22 $172.89 $207.06 $261.46 $330.68 $343.75 $730.30 $814.49 $1172.89 $2102.22 $2830.68
$4314.49 $4343.75 $4511.46 $6207.06 $16059.18
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 4.6 Effect of Compounding, Interest Rate, and Time on Future Value

Use a graphing calculator to complete the following tables.

Effect of Compounding Period

An investment of $1000 earns 5.3% interest for 15 years. Determine the future value for each
compounding period.
Compounding Period # Compounding Periods Per Year Future Value
Annually
Semi-Annually
Quarterly
Monthly

As the # of compounding periods per year The greatest change is between

increases, the future value a) Annual and semi-annual
a) Increases b) Semi-annual and quarterly
b) Decreases c) Quarterly and monthly
c) Stays the same

Effect of Interest Rate

An investment of $1000 earns interest compounded quarterly for 3 years. Determine the future value for
each interest rate.
Interest Rate Future Value
Increase
2%
3%
4%
5%

When the interest rate increases by 1% the interest

a) Goes up the same amount each time
b) Goes up by a smaller amount each time
c) Goes up by a larger amount each time

Effect of Time
Brittany, Gerald, Chantel, and Vanessa each invest $10 000 in an RRSP at a rate of 6% compounded
monthly. Brittany will retire in 10 years, Gerald in 20 years, Chantel in 30 years, and Vanessa in 40 years.
Complete the table to see how much the will have when they retire.
# Years Future Value
Increase
Brittany 10
Chantel 20
Gerald 30
Vanessa 40

When the # of years goes up by 10 the interest

a) goes up the same amount each time
b) goes up by a smaller amount each time
c) goes up by a larger amount each time

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 4.7 Simple & Compound Interest Review
1. Complete the table for simple interest. Show your calculations.
Principal Interest Rate Time Interest Amount
$150 3% 4 years

$5000 9½% 9 months

$3000 6.4% 45 days

2. A finance company charges simple interest at 30% per year on short-term loans.
a) Find the interest charged on a loan of $450 for 18 days.

b) What is the total amount that must be repaid after 18 days?

3. Mr. Perry deposits $2500 in an account that pays 5% interest compounded semi-annually.
Complete the table to determine how much is in the account after 2 years.
Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

4. Lisa deposits $4000 in an account that pays interest at a rate of 4% compounded quarterly.
a) How many rows will you need for 1 year (i.e. How many times will interest be added)?

b) Calculate the amount in the account after one year.

Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I

c) How much interest does she earn altogether?

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5. John wishes to earn $500 in simple interest over 18 months. How much money must he
invest at an interest rate of 8%?

6. Vanessa lent her brother $1000 for 5 years and charged him $362.50 in simple interest. What
was the interest rate? (Remember to express your answer as a percent).

7. Use a graphing calculator to answer the following questions.

a) Determine the future value of $800 b) Jacob invests $450 at 8% compounded
invested at 2.5% compounded quarterly for monthly. Determine the future value after
18 years. 10 years.
N= N=
I% = I% =
PV = PV =
PMT = PMT =
FV = FV =
P/Y = P/Y =
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN
c) Eddy borrows $1600 at 2.5% compounded d) Determine the future value of $5000
quarterly. How much will he owe after 9 invested at 3% compounded annually for 5
years. years.
N= N=
I% = I% =
PV = PV =
PMT = PMT =
FV = FV =
P/Y = P/Y =
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN
e) Determine the future value of $450 f) Tanner borrows $1250 at 3.25%
invested at 4% compounded monthly for compounded semi-annually. How much
10 years. will he owe after 15
N= N=
months? I% =
I% =
PV = PV =
PMT = PMT =
FV = FV =
P/Y = P/Y =
C/Y = C/Y =
PMT: END BEGIN PMT: END BEGIN

8. How much interest would be earned for each case in question 7?

a) ________ b) ________ c) ________ d) ________ e) ________ f) ________

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9. You invest some money for 5 years. Would you earn more interest if you invested at 4%
simple interest or 4% compounded annually?

10. You borrow money for 10 years. Would you pay more interest at 5% compounded semi-
annually or 5% compounded quarterly?

11. If your money is invested in a fund that pays compound interest, will you earn more interest
in the 1st year or the 10th year?

12. If your money is invested in a fund that pays simple interest, will you earn more interest in
the 1st year or the 10th year?

13. Explain the difference between simple interest and compound interest.

14. Jacob deposits $3200 into an account that pays 5% interest compounded semi-annually.
a) Calculate the amount in the account after 3 years.

# rows = _____. t =_____ years.

Interest Principal Rate Time Interest Amount
Period P r t I=Prt A=P+I
$3280

b) How much interest does he earn altogether?

Scrambled Answers: 6.66 7.25 51.40 162.41 168 220.87 402.31 452.89 456.66 511.02 548.84 670.87 796.37 998.84
1252.89 1301.40 2002.31 2759.53 3023.67 3711.02 4162.41 4166.67 5356.25 5796.37
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