Pre-Algebra Chapter 6 - Ramsey School District

A Follow-Up of Lesson 6-7
Compound Interest
Simple interest, which you studied in the previous lesson, is paid only on the
initial principal of a savings account or a loan. Compound interest is paid on
the initial principal and on interest earned in the past. You can use a spreadsheet
to investigate the impact of compound interest.
SAVINGS Find the value of a $1000 savings account after five years if
the account pays 6% interest compounded semiannually.
6% interest compounded semiannually means that the interest is paid twice a
year, or every 6 months. The interest rate is 6% 2 or 3%.
The rate is
entered as
a decimal.
The spreadsheet
evaluates the
formula A4 B1.
The interest is
added to the
principal every
6 months. The
spreadsheet
evaluates the
formula A4 B4.
The value of the savings account after five years is $1343.92.
Model and Analyze
1. Suppose you invest $1000 for five years at 6% simple interest. How does the
simple interest compare to the compound interest shown above?
2. Use a spreadsheet to find the amount of money in a savings account if $1000
is invested for five years at 6% interest compounded quarterly.
3. Suppose you leave $100 in each of three bank accounts paying 5% interest
per year. One account pays simple interest, one pays interest compounded
semiannually, and one pays interest compounded quarterly. Use a
spreadsheet to find the amount of money in each account after three years.
Make a Conjecture
4. How does the amount of interest change if the compounding occurs more
frequently?
Investigating Slope-
Spreadsheet Investigation Compound Interest 303