2. SIMPLE AND COMPOUND INTEREST
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Problem (Page 391 #34).
5(2x+1) = 22x
1
22x 1
5 = x+1
2
5 = 2(2x 1) (x+1)
5 = 2x
2
ln 5 = ln 2x 2
ln 5 = (x 2) ln 2
ln 5
=x 2
ln 2
ln 5
x=2+
⇡ 4.32
ln 2
2. Simple and Compound Interest
What is interest?
It is a fee paid for using another’s money. It is a dollar amount.
Simple Interest — the basis for all interest.
I = P rt
I = interest (usually in dollars).
P = principal or present value of an investment.
r = interest rate (usually annual interst rate - we assume this unless told
otherwise).
t = time (usually in years).
Note. r and t must agree in time units, e.g., dollars per year and years,
dollars per month and months, etc.