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| Interest
Calculations |
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Simple interest
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Amount
of interest, principal (start amount), interest rate and amount
after n years |
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| Simple interest
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| An amount of money deposited into a bank for a given period of
time brings to the depositor a profit called interest. |
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amount of
interest I, the bank pays you, depends on the
interest rate i,
the amount of money deposited, denoted as principal P
also called original balance (or
initial investment), and the period of
time n
the money is deposited, |
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since P
: 1 = I : (i · n)
=> |
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| Simple interest is calculated on
a yearly basis (annually, n
= 1) in which balance grows linearly with
time (as
opposed to compound interest). |
| That is, the interest stays
unchanged in each next year of saving because it is always calculated as the percent
of the same value, i.e., of the original
principal P, while in the compound interest it is calculated as the
percent of the sum of the balance and the interest from the previous
period. |
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If P
is the principal or initial investment and I
is the interest amount then, the accumulated value A at the end of n
investment periods is given by |
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A
= P + I = P + i · P · n = P (1 + i n). |
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| Example:
Somebody deposits $20000 into a savings account
where the rate of interest is 4.8% annually. |
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How much money in interest will earn after nine months? |
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| Example:
A bank lends a company money for the six months period at
a rate of 8% annually. |
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How much was lent if the company should pay $12000 of interest? |
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| Example:
At what interest rate was borrowed $75000 for one year if
$3000 of interest is charged? |
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| Example:
For what period of time should be deposited $200000 at a 6%
interest rate to earn $6000 of |
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interest? |
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| Beginning
Algebra Contents C |
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| Copyright
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