Applied Math 12
Graphing Simple Interest
We can also solve simple and compound interest problems graphically. We will focus on using
graphing technology to display and solve simple interest problems first.
Recall that the amount of simple interest earned is calculated by the formula: I = PRT
where I is the amount of interest earned; P is the principal, or the amount of the original
investment; R is the interest rate charged by the bank; T is the length of time, given in years.
Let’s take a look at an example involving simple interest:
Example: You have $100 that you invest at 5% simple interest. Let’s create a table of values for
this investment for 5 years and then we will graph it; first using pencil and paper and then using
the graphing calculator.
Graphing Simple Interest using Pencil and Paper
Year
Total Amount of
Investment
Amount of Interest
0
1
2
3
4
Total Amount of
Investment ($)
5
Number of Years
Graphing Simple Interest using the Graphing Calculator
The following row of buttons on the calculator are used for graphing. We will use all of these
buttons when graphing and solving problems with graphs.
Recall that you have $100 that you invested at 5% simple interest. Because the simple interest
formula only calculates the amount of interest earned, to find the total value of the investment,
we have to add the interest earned to the amount of the original investment, also known as the
principal. So, the formula for finding the total value of an investment calculated with simple
interest would be:
Total Amount of Investment = Principal + PRT
Using graphing symbols, where “y” is the variable that represents the vertical axis and “x”
represents the values of the horizontal axis, this equation would become:
y = P + PRx
Where “y” represents the total amount of the investment and “x” represents time, in number
of years.
We can now use our graphing calculator to graph this using technology.
1. Press Y= and enter into Y1:
2. Press Graph. You probably do not see anything besides the x and y axes. We have to
adjust the window settings so that you can see the graph of your equation in the
window. Choose some appropriate settings for the maximum and minimum values for
both the x and y axes and record them below:
3. Press GRAPH again. This time you should see the graph of your equation, which you
know from the pencil and paper example is a linear function (a line).
4. Use value (inside the CALC menu) to determine the value of the investment in 12 years.
Remember, this would mean that x = 12.
5. Use value (inside the CALC menu) to determine the value of the y -intercept.
Remember, this would mean that x =0.
6. In what year would the investment reach a total value of $185.00?