Page 510 - Basic College Mathematics with Early Integers

6.6 PERCENT AND PROBLEM SOLVING: INTEREST Objectives

Calculate Simple Interest.
Objective Calculating Simple Interest
Calculate Compound Interest.
Interest is money charged for using other people’s money. When you borrow Calculate Monthly Payments.
money, you pay interest. When you loan or invest money, you earn interest. The
money borrowed, loaned, or invested is called the principal amount, or simply
principal. Interest is normally stated in terms of a percent of the principal for a
given period of time.The interest rate is the percent used in computing the interest.
Unless stated otherwise, the rate is understood to be per year. When the interest is
computed on the original principal, it is called simple interest. Simple interest is cal-
culated using the following equation:

Simple Interest
#
#
Simple Interest = Principal Rate Time
# #
I = P R T
where the rate is understood to be per year and time is in years.

Example 1 Finding Simple Interest PRACTICE 1
Find the simple interest after
Find the simple interest after 2 years on $500 at an interest rate of 12%.
5 years on $875 at an interest
Solution: In this example, P = $500 , R = 12% , and T = 2 years. Replace the rate of 7%.
variables with values in the formula I = PRT .
# #
I = P R T
#
#
I = $500 12% 2 Let P = $500, R = 12% , and T = 2 .
#
#
= $500 (0.12) 2 Write 12% as a decimal.
= $120 Multiply.
The simple interest is $120.
Work Practice 1
If time is not given in years, we need to convert the given time to years.

Example 2 Finding Simple Interest PRACTICE 2
A student borrowed $1500 for
Ivan Borski borrowed $2400 at 10% simple interest for 8 months to buy a used 9 months on her credit card at
Toyota Corolla. Find the simple interest he paid.
a simple interest rate of 20%.
Solution: Since there are 12 months in a year, we first find what part of a year How much interest did she
8 months is. pay?
8 2
8 months = year = year
12 3
Now we find the simple interest.
#
#
simple interest = principal rate time
simple interest = $2400 10%
T
T
T
T
2
#
#
3 Answers
Continued on next page 1. $306.25 2. $225
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