 # Compound Interest Word Problems

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Videos, worksheets, solutions, and activities to help Algebra students learn how to solve word problems that involve compound interest. Learn the difference between simple interest and compound interest and how to derive the Annual Compound Interest Formula and Compound Interest Formula that is calculated more than once per year

Understanding Simple Interest and Compound Interest
This video shows the difference between simple interest and compound interest.
Example:
Suppose you deposit $10,000 into the bank at an annual percentage rate (APR) of 6%. How much do you have 5 years later using (a) simple interest? (b) compound interest? How to derive the Annual Compound Interest Formula? This video shows how to derive the formula for annual compound interest A = P(1 + APR)Y where A is the amount accumulated after Y years, if interest is compounded annually at the rate of APR (annual percentage rate), and P is the Principle (Initial Value) Compound Interest - More than Once Per Year If the interest is compounded more than once a year then the compound interest formula will be $$A = P{\left( {1 + \frac{{APR}}{n}} \right)^{nY}}$$ where A is the amount accumulated after Y years, at the rate of APR (annual percentage rate), n is the number of times compounded per year and P is the Principle (Initial Value) Example: Suppose you deposit$100 at an APR of 12% compounded quarterly. How much do you have after 1 year? 2 years? Compound Interest - More than Once Per Year - Part 2. This video shows another example using the compound interest formula
Example:
Suppose you would like to have \$20,000 in bank 18 year from now. If you get an APR of 6%, compounded monthly, how much would you have to invest today?

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.  