Property
The formula to model simple interest applications is I=Prt, where I is interest, P is principal, r is the rate, and t is the time. For calculations involving one year, t=1. A table is used to organize the information with columns for the account type, principal, rate, time, and interest. The system of equations is derived from the 'Principal' column (total amount invested) and the 'Interest' column (total interest earned).
Examples
- Jake invested 20,000 dollars, part in a fund earning 5% interest and the rest in a fund earning 9% interest. If his total interest for the year was 1,320 dollars, how much was in each fund? Let x and y be the amounts. The system is x+y=20000 and 0.05x+0.09y=1320. Solving gives x=12000 and y=8000.
- A retiree invests 70,000 dollars into two accounts. She wants to earn an overall interest rate of 6%. One account pays 4% and the other pays 7%. How much should she invest in each? The system is x+y=70000 and 0.04x+0.07y=0.06(70000). Solving gives x=23333.33 and y=46666.67.