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Math OER
Week 2 Activity

Practice with Simple Interest

Show your work or explain your thinking. There may be a few different methods that work.

1. You borrow $1850 for tuition costs with the agreement that you will repay it in 6 months. Your lender offers you an APR of 11%. How much will you have to repay in 6 months?

2. Replace "6 months" in the previous question with "4 months." What will you have to repay, and how much did you save compared to a 6 month agreement?

3. A loan company charges $25 interest for a two-month loan of $275. Find the APR they are charging. Round your answer to the nearest tenth of a percent.

4a. Suppose you obtain a $5,000 (starting value) T-note with a 3% annual rate, paid quarterly, with maturity in 5 years. How much interest will you earn over the course of the 5 years?

4b. How much are you paid every quarter?

5. A friend asks to borrow $60 and agrees to pay you back $65. How much time should you give your friend if you want to make sure the APR is below 50%? Use appropriate time units.

Practice with Compound Interest

1. You have $1000, and you earn 5% interest each year. The interest you earn stays in the account, so that you earn interest on the principal as well as the interest the next year. Assume that the ending balance for each year becomes the starting balance for the following year.

YearStarting BalanceInterest EarnedEnding Balance

2. Now use the compound interest formula to predict the ending balance in the account after 10 years.

3. ...after 19 years?

4. ...after 20 years?

5. How much interest did you earn during year 20? (Subtract the year 20 ending balance from the year 19 ending balance.)

Use the chart below to find the future value of $2,500 at 8% Interest. Please recopy the table large enough to write the formula you will use to calculate the result for each row. Then write the dollar amounts. Some of the results have been entered for you. Use those to check your work.

Type of InterestFormula UsedAfter 1 YearAfter 10 YearsAfter 30 Years
Simple Interest$2,700
Compounded Annually
Compounded Quarterly$5,520.10
Compounded Monthly$27,339.32
Compounded Daily

These problems are not graded. They are only to help you practice with our math topics. Do not rush to look at answers! First ask for hints from your instructor or classmates. But if you are really ready, the answers are here.