Percent and Problem Solving: Interest Section 7.6

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 2

simple interest principal rate time simple interest  principal rate time or or I  P r t where the rate is understood to be per year and time is in years. Simple Interest 3 Martin-Gay, Prealgebra, 5ed

total amount (paid or received) principal interest total amount (paid or received)  principal  interest Finding the Total Amount of a Loan or Investment 4 Martin-Gay, Prealgebra, 5ed

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 5

total amount original principal compound interest factor 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 6 Martin-Gay, Prealgebra, 5ed

monthly payment monthly payment  Finding the Monthly Payment of a Loan 7 Martin-Gay, Prealgebra, 5ed