Simple and Compound Interest Worksheet

Question 1

Lena deposits $200 in an account that earns 5% simple interest each year. How much interest will she earn after 3 years?

Accepted Answer

Lena will earn $30 in simple interest because I = 200 x 0.05 x 3 = 30.

Question 2

A savings account has a principal of $450 and earns 4% simple interest for 2 years. What is the total balance at the end of 2 years?

Accepted Answer

The simple interest is $36 because 450 x 0.04 x 2 = 36. The total balance is $486.

Question 3

Marcus earned $36 in simple interest on a principal of $300 after 3 years. What was the annual interest rate?

Accepted Answer

The annual interest rate was 4% because 36 = 300 x r x 3, so r = 36 divided by 900 = 0.04.

Question 4

A loan of $600 earns $72 in simple interest at an annual rate of 6%. How many years did it take to earn that interest?

Accepted Answer

It took 2 years because 72 = 600 x 0.06 x t, and 72 divided by 36 equals 2.

Question 5

In an interest problem, what does the principal represent?

Accepted Answer

The principal is the starting amount of money that is invested, saved, or borrowed before interest is added.

Question 6

A $1,000 investment earns 5% interest compounded annually for 2 years. What is the final balance?

Accepted Answer

The final balance is $1,102.50. After year 1 the balance is $1,050, and after year 2 it is 1,050 x 1.05 = $1,102.50.

Question 7

An account starts with $800 and earns 10% interest compounded annually. Find the balance after year 1, year 2, and year 3.

Accepted Answer

The balances are $880 after year 1, $968 after year 2, and $1,064.80 after year 3.

Question 8

Compare $500 invested at 8% simple interest for 3 years with $500 invested at 8% interest compounded annually for 3 years. Which has the larger balance, and by how much?

Accepted Answer

The compound interest account has the larger balance. The simple interest balance is $620, the compound interest balance is $629.86, and the difference is $9.86.

Question 9

A bank compounds $300 annually at a rate of 3% for 4 years. What is the final balance rounded to the nearest cent?

Accepted Answer

The final balance is $337.65 because 300 x 1.03 x 1.03 x 1.03 x 1.03 = 337.65 when rounded to the nearest cent.

Question 10

Nia can invest $1,200 for 2 years. Option A earns 6% simple interest. Option B earns 5.5% interest compounded annually. Which option gives her more money after 2 years?

Accepted Answer

Option A gives her more money. Option A ends with $1,344, while Option B ends with $1,335.63.

Question 11

A credit union gives a simple interest loan of $900 at an annual rate of 7% for 1.5 years. How much interest will be paid?

Accepted Answer

The interest paid will be $94.50 because 900 x 0.07 x 1.5 = 94.50.

Question 12

An account earned $40 in simple interest at a rate of 5% per year for 2 years. What was the original principal?

Accepted Answer

The original principal was $400 because 40 = P x 0.05 x 2, so P = 40 divided by 0.10 = 400.

Question 13

Which type of interest usually grows faster over a long time, simple interest or compound interest? Explain why.

Accepted Answer

Compound interest usually grows faster over a long time because interest is added to the balance, and future interest is calculated on the new larger balance.

Question 14

Jay calculates the balance for $700 at 4% interest compounded annually for 3 years as 700 x (1 + 4)^3. What mistake did Jay make, and what expression should he use instead?

Accepted Answer

Jay used 4 instead of 0.04 for the interest rate. He should use 700 x (1 + 0.04)^3, which equals about $787.40.

Question 15

An account starts with $1,000 and earns 6% interest compounded annually. Find the balances for years 0, 1, 2, and 3. Then explain whether the yearly increase stays the same or changes.

Accepted Answer

The balances are $1,000 at year 0, $1,060 at year 1, $1,123.60 at year 2, and $1,191.02 at year 3. The yearly increase changes and gets larger because each year interest is calculated on a larger balance.

Simple and Compound Interest

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