1. Advanced Precalculus Notes 4.7 Compound Interest
Simple Interest Formula: I = Prt
Compound Interest Formula:
Continuous Compounding:

2. A credit union pays interest of 8% per annum compounded quarterly on a certain savings plan. If $1000 is deposited in such a plan and the interest is allowed to accumulate in the account, how much is in the account after 1 year?

3. Determine the amount in an account after one year if $1000 is invested at 10% compounded:
a) Annually b) Semiannually c) Quarterly
d) Monthly e) Daily f) Continuously

4. Computing the Effective Rate of Interest
Advertised annual rate of interest is not always equivalent to effective rate of interest.
If $2000 is placed in an IRA (Individual Retirement Account) on January 2, 2004, and will pay interest of 7% per annum compounded continuously:
a) What will the IRA be worth on January 1, 2024?
b) What is the effective rate of interest?

5. Present Value Formulas
A zero-coupon (noninterest-bearing) bond can be redeemed in 10 years for $1000. How much should you be willing to pay for it now if you want a return of:
8% compounded monthly?
b) 7% compounded monthly?

6. What annual interest rate, compounded annually, should you seek if you want to double your investment in 5 years?
How long will it take for an investment to that earns 5% compounded continuously to:
a) double in value b) triple in value

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