Page 511 - Basic College Mathematics with Early Integers

488 C HAPTE R 6 I PERCENT
= $2400 0.10 2
#
#
3
= $160

The interest on Ivan’s loan is $160.
Work Practice 2

Concept Check Suppose in Example 2 you had obtained an answer of
$16,000. How would you know that you had made a mistake in this problem?

When money is borrowed, the borrower pays the original amount borrowed, or
the principal, as well as the interest. When money is invested, the investor receives
the original amount invested, or the principal, as well as the interest. In either case,
the total amount is the sum of the principal and the interest.

Finding the Total Amount of a Loan or Investment

total amount (paid or received) = principal + interest

PRACTICE 3 Example 3 Finding the Total Amount of an Investment
If $2100 is borrowed at a
An accountant invested $2000 at a simple interest rate of 10% for 2 years. What
simple interest rate of 13% for
total amount of money will she have from her investment in 2 years?
6 months, find the total
amount paid. Solution: First we find her interest.
I = P R T
# #
#
#
= $2000 (0.10) 2 Let P = $2000, R = 10% or 0.10, and T = 2 .
= $400
The interest is $400.
Next, we add the interest to the principal.

total amount = principal + interest
T T T
total amount = $2000 + $400
= $2400
After 2 years, she will have a total amount of $2400.
Work Practice 3

Concept Check Which investment would earn more interest: an amount
of money invested at 8% interest for 2 years, or the same amount of money
invested at 8% for 3 years? Explain.

Objective Calculating Compound Interest
Answer
3. $2236.50 Recall that simple interest depends on the original principal only. Another type of
interest is compound interest. Compound interest is computed not only on the prin-
Concept Check Answers Copyright 2012 Pearson Education, Inc.
cipal but also on the interest already earned in previous compounding periods.
$16,000 is too much interest;
Compound interest is used more often than simple interest.
8% for 3 years. Since the interest
rate is the same, the longer you keep Let’s see how compound interest differs from simple interest. Suppose that
the money invested, the more interest $2000 is invested at 7% interest compounded annually for 3 years. This means that
you earn.