Not sure where to start? These are the lessons and games we recommend most to students, parents and teachers on Basic-mathematics.com. Each lesson explains the topic in plain language, walks you through worked examples step by step, and ends with practice so you can check your understanding. Pick one below, or use the menu to find lessons on fractions, algebra, geometry, statistics and more.
We will use the compound interest formula to solve these compound interest word problems.
Example #1
A deposit of $3000 earns 2% interest compounded semiannually. How much money is in the bank after for 4 years?
Solution
B = P( 1 + r)n
P = $3000
r = 2% annual interest rate / 2 interest periods = 1% semiannual interest rate
n = number of payment periods = number of interest periods times number of years
n = 2 times 4 = 8
B = 3000( 1 + 1%)8 = 3000(1 + 0.01)8 = 3000(1.01)8
B = 3000(1.082856)
B = 3248.57
After four years, there will be 3248.57 dollars in the bank account.
Example #2
A deposit of $2150 earns 6% interest compounded quarterly. How much money is in the bank after for 6 years?
Solution
B = P( 1 + r)n
P = $2150
r = 6% annual interest rate / 4 interest periods = 1.5% quarterly interest rate
n = number of payment periods = number of interest periods times number of years
n = 4 times 6 = 24
B = 2150( 1 + 1.5%)24 = 2150(1 + 0.015)24 = 2150(1.015)24
B = 2150(1.4295)
B = 3073.425
After 6 years, there will be 3073.425 dollars in the bank account.
Example #3
A deposit of $495 earns 3% interest compounded annually. How much money is in the bank after for 3 years?
Solution
B = P( 1 + r)n
P = $495
r = 3% annual interest rate / 1 interest period = 3% annual interest rate
n = number of payment periods = number of interest periods times number of years
n = 1 times 3 = 3
B = 495( 1 + 3%)3 = 495(1 + 0.03)3 = 495(1.03)3
B = 495(1.092727)
B = 540.89
After 3 years, there will be 540.89 dollars in the bank account.