Simple Interest Example

Assume you deposit $1,000 in an account earning 7% simple interest for 2 years. What is the accumulated interest at the end of the 2nd year? What is the value of the account after two years?

Given

1. Finding Simple Interest (simple interest)

2. Future

Future Value Problem

If you invested $2,000 today in an account that pays 6% interest, with interest compounded annually, how much will be in the account at the end of two years if there are no withdrawals?

Given PV

1. Future value (compounded annually)

Present Value Problem

Joann needs to know how large of a deposit to make today so that the money will grow to $2,500 in 5 years. Assume todays deposit will grow at a compound rate of 4% annually.

Given PV

1. Present value (compounded annually)

Solving for n
If I invest $10,000 today in a savings account paying me 6% interest (compounded annually), how long will it take for me to have $50,000 in my account?

Given PV

1. Substitute the values that we know in the Future Value Formula

2. Divide both sides of the equation by common denominator

3. Use ln (or log) function on the both sides of the equation

4. Solve for n

Solving for i
If one invests $2,000 today and has accumulated $2,676.45 after exactly 5 years, what rate of annual compound interest was earned?

Given PV

1. Substitute the values that we know in the Future Value Formula

2. Divide both sides of the equation by common denominator

3. Put it to the root of ____ or to the power 4. Solve for i