This Math quiz is called 'Consumer Math (Calculating Compound Interest to the Penny)' and it has been written by teachers to help you if you are studying the subject at middle school. Playing educational quizzes is a fabulous way to learn if you are in the 6th, 7th or 8th grade - aged 11 to 14.
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As you may recall, there are two basic forms of interest, i.e., simple interest and compound interest. For this quiz you will only be dealing with compound interest.
In a separate quiz, you would calculate the compound interest to the whole dollar, meaning when you had to multiply the interest by its power, you were to round that amount to the nearest 100th. In this quiz, you will be required to calculate the interest by the full string of its power or to the penny. [NOTE: You will need to use a calculator to do the problems here.] This will enable you to more accurately determine the amount of interest and the full amount to be paid back or that will be left in savings at the end of the term.
So to just quickly refresh you on what “interest” is in the monetary world of saving and borrowing, it is the amount of extra money you earn or you have to pay back.
As we will be only dealing with compound interest calculations in this quiz, the formula that will be used is: A = P(1 + r)t.
A = The amount of money (including the accrued interest) after __ years/months or the compound amount.
P = The principal saved or owed.
r = The interest rate earned per year
t = The time period of the loan or amount saved (notice that the time is put into the “power” position)
Okay, let’s work out one problem together.
You have to borrow $850.00 at an interest rate of 3.28% for 2 years. Using the compound interest formula that will read as follows:
A = 850(1 + .0328)2
(1.0328 x 1.0328) = 1.0666758 (You need to use this entire percentage string to do the problem.)
850 x 1.0666758 = 906.67443 (Round this number to the nearest penny making it $906.67.)
$906.67 - $850.00 = $56.67
$56.67 is the compound interest over two years and
A = $906.67 is the full amount that will have to be paid back over the two years.
Had you rounded the percentage off to 1.07, the full amount to pay off would have come to $909.50. It is an approximate amount but not the “exact” amount. When figuring out compound interest to the exact amount, you must use the percentage string.