Question

Determine the amount of interest that will be earned on each of the following investments: (Round answers to 2 decimal places, e.g. 15.25.)

					(i)			(n)
		Investment			Interest Rate			Number of Periods			Type of Interest				Amount of Interest
a.		$160			5%			1				Simple			enter a dollar amount rounded to 2 decimal places
b.		$700			9%			3				Simple			enter a dollar amount rounded to 2 decimal places
c.		$700			7%			2				Compound			enter a dollar amount rounded to 2 decimal places

Answer 1

Part A:

Int = PTR
P = Principal
T = Time
R = Rate of int

Particulars	Amount
Principal	$    160.00
Time Period ( In Years)	1
Rate of Int	5%

Int = PTR
= $ 160 * 1 * 5 %
= $ 8

Int for 1 Years is $ 8

Part B:

Particulars	Amount
Principal	$    700.00
Time Period ( In Years)	3
Rate of Int	9%

Int = PTR
= $ 700 * 3 * 9 %
= $ 189

Int for 3 Years is $ 189

Part C:

Compound Int = Future Value - Deposit

Future Value:

Future Value is Value of current asset at future date grown at given int rate or growth rate.

FV = PV (1+r)^n
Where r is Int rate per period
n - No. of periods

Particulars	Amount
Present Value	$               160.00
Int Rate	7.0000%
Periods	2

Future Value = Present Value * ( 1 + r )^n
= $ 160 ( 1 + 0.07) ^ 2
= $ 160 ( 1.07 ^ 2)
= $ 160 * 1.1449
= $ 183.18
Int = Futur Value - Deposit

= $ 183.18 - $ 160

= $ 23.18