Question

1. Simple Interest versus Compound Interest

First Tappan Bank pays 9 percent simple interest on its savings account balances, whereas First Mullineaux Bank pays 9 percent interest compounded annually. If you made a $7,500 deposit in each bank, how much more money would you earn from your First Mullineaux Bank account at the end of 8 years?

2. Calculating Future Values

For each of the following, compute the future value:

Present Value	Years	Interest Rate	Future Value
$2,328	11	13%
7,513	7	9
74,381	14	12
192,050	16	6

3. Calculating Present Values

For each of the following, compute the present value:

Present Value	Years	Interest Rate	Future Value
	13	9%	$16,832
	4	7	48,318
	29	13	886,073
	40	21	550,164

4. Calculating Interest Rates

Solve for the unknown interest rate in each of the following:

   

Present Value	Years	Interest Rate	Future Value
$181	5		$317
335	17		1,080
48,000	13		185,382
40,353	30		531,618

5. Calculating the Number of Periods

Solve for the unknown number of years in each of the following:

   

Present Value	Years	Interest Rate	Future Value
$560		7%	$1,389
810		8	1,821
18,400		9	289,715
21,500		11	430,258

6. Calculating Interest Rates

Assume the total cost of a college education will be $345,000 when your child enters college in 18 years. You presently have $73,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?

7. Calculating the Number of Periods

At 6.1 percent interest, how long does it take to double your money? To quadruple it?

Answer 1

To compute how much more interest will be earned by compound interest than by simple interest, we will calculate simple interest earned as well as compound interest earned using respective formulas and then subtract simple interest from compound interest.