Examples, solutions, and videos to help Algebra I students compare the rate of change for simple and compound interest and recognize situations in which a quantity grows by a constant percent rate per unit interval.
The following diagram shows the simple interest formula and compound interest formula. Scroll down the page for more examples and solutions.
Simple Interest: Interest is calculated once per year on the original amount borrowed or invested. The interest does not become part of the amount borrowed or owed (the principal).
Compound Interest: Interest is calculated once per period on the current amount borrowed or invested. Each period, the interest becomes a part of the principal.
A youth group has a yard sale to raise money for a charity. The group earns $800 but decides to put its money in the bank for a while. Calculate the amount of money the group will have if:
a. Cool Bank pays simple interest at a rate of 4%, and the youth group leaves the money in for 3 years.
b. Hot Bank pays an interest rate of 3% compounded annually, and the youth group leaves the money in for 5 years.
c. If the youth group needs the money quickly, which is the better choice? Why?
Problem Set Sample Solutions
Try the free Mathway calculator and
problem solver below to practice various math topics. Try the given examples, or type in your own
problem and check your answer with the step-by-step explanations.
We welcome your feedback, comments and questions about this site or page. Please submit your feedback or enquiries via our Feedback page.