Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall. 7.6 Percent and Problem Solving: Interest

Martin-Gay, Prealgebra, 6ed 22 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall. Interest is money charged for using other people’s money. Money borrowed, loaned, or invested is called the principal amount, or simply principal. The interest rate is the percent used in computing the interest (usually per year). Simple interest is interest computed on the original principal. Calculating Simple Interest

Martin-Gay, Prealgebra, 6ed 33 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall. simple Interest  Principal Rate or I  P R T where the rate is understood to be per year and time is in years. Simple Interest

Martin-Gay, Prealgebra, 6ed 44 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall. total amount (paid or received)  principal  interest Finding the Total Amount of a Loan

Martin-Gay, Prealgebra, 6ed 55 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall. Compound interest is computed on not only the principal, but also on the interest already earned in previous compounding periods. If interest is compounded annually on an investment, this means that interest is added to the principal at the end of each year and next year’s interest is computed on this new amount. Calculating Compound Interest

Martin-Gay, Prealgebra, 6ed 66 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall. Compound Interest Formula The total amount A in an account is given by where P is the principal, r is the interest rate written as a decimal, t is the length of time in years, and n is the number of times compounded per year.

Martin-Gay, Prealgebra, 6ed 77 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall. total amount  original principal compound interest factor The compound interest factor comes from the compound interest table found in Appendix C of the textbook. Finding Total Amounts with Compound Interest