Reinvestment matters!
If at the end of a payment period the interest due is reinvested at the same rate, then the interest as well as the original principle will earn interest during the next payment period.
Interest paid on interest reinvested is called compound interest.
1. If $1,000 is deposited at annual interest rate 10% and the bank provides interest
(a) annually;
(b) semiannually;
(c) quarterly;
(d) monthly.
What is the amount of money in the bank after 4 years?
2.If $10,000 is deposited at annual interest rate 20%, calculate the future value F in 1 year, if the number compounding periods is
(a) 2a
(c) 12
(d) 24
(e) 48
(f) 365?
How much should you invest now at 15% to have $8,000 toward the purchase of a car in 5 years if interest is
(A)Compounded quarterly?
(B)Compounded monthly?
(C)Compounded daily?