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Simple interest
Interest (I) is the fee charges for the use of money
Principal (P) is the amount of money borrowed or placed into a saving
account.
Rate(r)is the percent of the principal paid for having money loaned.
Time (t) or term is teh length f time that the money is being borrowed or
invested.
Future value(A)is the amount pf the loan or investment plus the interest
paid or earned.
FORMULAS
Interest=principal x rate x time
Future value=principal + interest
A=P+I or A=P(1+rt)
Computing simple interest and future value
Find the simple interest and future value for a loan of 3,600 for 3 years
at a rate of 8% per yr.
8%=0.08
I=Prt
=(3,600)(0.08)(3)
interest=864
The interest on loan is 864. to find the future value, substitute into the
formula A=P+I
A=P+I
=3,600+864
=4,464
The total amount of money to be paid back is 4,464
Note: that if hadn’t specifically been asked to find the interest, we coukd
have found the future vale in one step.
Substitute into this formula
A=P(1+rt)
=3,600(1+0.08)(3)
=4,464
Computing Simple Interest for a Term in Months
To meet payroll during a down period, United Ceramics Inc. needed to borrow
$2,000.00 at 4%
simple interest for 3 months. Find the interest.
SOLUTION
Change 3 months to years by dividing by 12, and change the rate to a decimal.
Substitute in the
formula I = Prt.
I = ($2,000)(0.04)(3 /12 ) = $20
The interest is $20.
Computing Monthly Payments

Admiral Chauffeur Services borrowed $600 at 9% simple interest for 1 1/2 years to
repair a
limousine. Find the interest, future value, and the monthly payment.
SOLUTION
Step 1 Find the interest.
I = Prt = ($600)(0.09) (1 1/2 ) = $81
The interest is $81.
Step 2 Find the future value of the loan.
A = P + I = $600 + $81 = $681
Step 3 Divide the future value of the loan by the number of months. Since 1 1/2 years
= 18
months, divide $681 by 18 to get $37.83. The monthly payment is $37.83.
Computing Principal
Phillips Health and Beauty Spa is replacing one of its workstations. The interest on a
loan
secured by the spa was $93.50. The money was borrowed at 5.5% simple interest for
2 years.
Find the principal.
SOLUTION
I = $93.50, r = 5.5% = 0.055, and t = 2
I = Prt
$93.50 = P(0.055)(2)
$93.50 /(0.055)(2) = P(0.055)(2) /(0.055)(2)
P = $850
The amount of the loan was $850.
Example 6:Computing Interest Rate

R & S Furnace Company invested $15,250 for 10 years and received $9,150 in simple
interest.
What was the rate that the investment paid?
SOLUTION
P = $15,250, t = 10, and I = $9,150
I = Prt
$9,150 = ($15,250)(r)(10)
$9,150 /($15,250)(10) = ($15,250)(r)(10) /($15,250)(10)
0.06 = r
r = 0.06 or 6%
The interest paid on the investment was 6%.
interest.
SOLUTION
P = $15,250, t = 10, and I = $9,150
I = Prt
$9,150 = ($15,250)(r)(10)
$9,150 /($15,250)(10) = ($15,250)(r)(10) /($15,250)(10)
0.06 = r
r = 0.06 or 6%

interest.
SOLUTION
P = $15,250, t = 10, and I = $9,150
I = Prt
$9,150 = ($15,250)(r)(10)
$9,150 /($15,250)(10) = ($15,250)(r)(10) /($15,250)(10)
0.06 = r
r = 0.06 or 6%
COMPOUND INTEREST
When interest is computed on the principal and any previously earned interest, it is
called
compound interest.When interest is calculated once each year, we say that it is
compounded
annually. In many cases, interest is computed at more frequent intervals than that. It
can be
compounded semiannually(twice a year), quarterly(4 times a year), monthly(12 times
a year),
Example 1:Comparing Simple and Compound Interest
Suppose that $5,000 is invested for 3 years at 8%.
(b) Find the compound interest if interest is calculated once per year.
SOLUTION
(a) Using the formula I = Prt with P = $5,000, r = 0.08, t = 3, we get
I = $5,000 × 0.08 × 3 = $1,200
The amount of simple interest earned over 3 years is $1200
(b) First year: We have P = $5,000, r = 0.08 and t = 1:
I = Prt = $5,000 × 0.08 × 1 = $400
The interest for the first year is $400.
Formula for Computing Compound Interest

Example 3: Computing Compound Interest
Find the interest on $7,000 compounded quarterly a 3% for 5 years
: Finding the Time Needed to Reach an Investment Goal

If you want to save $5,000 before buying your first new car, and you have $3,000
right now to
invest at 3% interest compounded monthly, how long will you have to
wait?
Formula for Effective Interest Rate
where E = effective rate
r = interest rate per year (i.e., stated rate)
n = number of periods per year the interest is calculated
The stated rate is also called the nominal rate.
Finding Effective Interest Rate

Find the effective interest rate when the stated rate is 4% and the interest is
compounded weekly,
then describe what your result means.
Example 7: Comparing the Effective Rate of Two Investments

Which savings account is a better investment: 6.2% compounded daily or 6.25%
compounded
semiannually?
Effective Interest Rate
The effective rate (also known as the annual yield) is the simple interest rate which
would yield
the same future value over 1 year as the compound interest rate.
Formula for Effective Interest Rate
where E = effective rate
r = interest rate per year (i.e., stated rate)
n = number of periods per year the interest is calculated
The stated rate is also called the nominal rate.
Find the effective interest rate when the stated rate is 4% and the interest is
compounded weekly,
then describe what your result means.
: Comparing the Effective Rate of Two Investments

Which savings account is a better investment: 6.2% compounded daily or 6.25%
compounded
semiannually
ANNUITY
An annuity is a savings investment for which an individual or business makes the
same
payment each period (i.e., annually, semiannually, or quarterly) into a compound-
interest account
where the interest does not change during the term of the investment. The total
amount
accumulated (payments plus interest) is called the future value of the annuity.
Annuities are set
up by individuals to pay for college expenses, vacations, or retirement.
Finding Future Value of an Annuity
Find the future value of an annuity where a $500 payment is made annually for 3
years at 6%.
SOLUTION:
The interest rate is 6% and the payment is $500 each year for 3 years.
End of the first year
: $500 (payment)
End of the second year: The $500 collected 6% interest and a $500 payment is made.
$500(0.06) = $30 interest.
The annuity is worth:
Interest + Principal paid at end of first year + Payment at the end of the second year
$30 + $500 + $500 = $1,030
Formula for Finding the Future Value of an Annuity
where A is the future value of the annuity

R is the regular periodic payment
r is the annual interest rate
n is the number of payments made per year
t is the term of the annuity in years
Finding the Future Value of an Annuity
If you open an annuity with semiannual payments of $800 at 5% compounded
semiannually for
4 years:
(a) Find the future value of the annuity.
(b) How much interest will you earn?
(c) How much money would you have to invest in a regular savings account at 5%
compounded
semiannually to get the same future value after 3 years? (Note that your first payment
on the
annuity is at the end of the first year, so that would be when you’d make the lump
-sum
investment, giving you just 3 years of interest.)
Finding the Monthly Payment for an Annuity

Suppose you’ve always dreamed of opening your own tattoo parlor, and decide it’s
time to do
something about it. A
financial planner estimates that you would need a $35,000 initial
investment to start the business, and you plan to save that amount over the course of 5
years by
investing in an annuity that pays 7.5% compounded weekly. How much would you
need to
invest e
ach week?
Statistics
Data are measurements or observations that are gathered for an event under study.
Statistics is the branch of mathematics that involves collecting, organizing,
summarizing, and
presenting data and drawing general conclusions from the data.
Populations and Samples
When statistical studies are performed, we usually begin by identifying the population
for
the study. A population consists of all subjects under study. (i.e. all colleges in
NDMU). More
often than not, it’s not realistic to gather data from every member of a population.
A sample is a representative subgroup or subset of a population.
Sampling Methods
We will study four basic sampling methods:
1. In order to obtain a random sample, each subject of the population must have an
equal chance
of being selected.
2. A systematic sample is taken by numbering each member of the population and
then selecting
every k th member, where k is a natural number. When using systematic sampling, it’s
important
that the starting number is selected at random. For example,
Consider every 5th on the list.
Therefore, the samples from every 5th from left to right are 13, 23, 26, 34, 23, and 12.
Example: Drawing a Pie Chart to Represent Data
The marketing firm Deloitte Retail conducted a survey of grocery shoppers. The
frequency
distribution below represents the responses to the survey question “How often do you
bring
your
own bags when grocery shopping?” Draw a pie chart to represent the data.
Response Frequency
Always 10
Never 39
Frequently 19
Occasionally 32

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Mst 111 reviewer

Computing simple interest and future value

Substitute into this formula

Computing Monthly Payments

Example 6:Computing Interest Rate

The interest paid on the investment was 6%.

Formula for Computing Compound Interest

: Finding the Time Needed to Reach an Investment Goal

Finding Effective Interest Rate

Example 7: Comparing the Effective Rate of Two Investments

: Comparing the Effective Rate of Two Investments

where A is the future value of the annuity

Finding the Monthly Payment for an Annuity

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