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Introduction on how to solve interest problems : Simple interest: Simple interest is money we can gain by initially investing some money (the principal). A percentage (the interest) of the principal amount is added to the principal, it will make our initial investments grow. Compound interest: In compound interest we can learn how our money is growing over time with compound interest. Solve Interest Problems : Solved Example for Simple Interest: Problem 1: We want to solve the interest on $1000 at 10% interest per year after 2 year(s) in the simple interest form. Sol: The formula for solve simple interest problem is: I = P * r * t Where: P is the principal amount, $1000.00. r is the interest rate, 10% per year, or in decimal form, 10/100=0.1. t is the time involved, 2....year(s) time periods. So, t is 2....year time periods. To find the simple interest, we multiply 1000 × 0.1 × 2 to get that: Therefore the interest is: $200.00. Generally now, the interest is added onto the principal to figure some new amount after two year(s), or 1000.00 + 200.00 = 1200.00. Solve Interest Problems : Solve Compound Interest: Problem 2: We want to solve our new principal from compound interest problem: an initial investment of $500 at 5% annual interest, compounded 2 times per year, After 2 year(s). Sol: In this problem the annual interest rate attached to our money is 5%. Since it is compounded 2 times a year, the interest rate at each compounding time is 5% ÷ 2 or 2.5%. Before we start, be sure to convert our interest rate at the time of compounding, 2.5%, into a decimal by dividing it by 100, so 2.5% becomes 0.025 for calculation purposes. The new principal can be found by applying this formula: New Principal = Current Principal × (1 + r) Where r is our interest rate at the time of compounding, in this case 2.5% (or 0.025 in the calculations). Year 1, compounding time #1 Our new principal $500.00 + $12.50 = $512.50 Year 1, compounding time #2 Our new principal $512.50 + $12.81 = $525.31 Year 2, compounding time #1 Our new principal $525.31 + $13.13 = $538.45 Year 2, compounding time #2 Our new principal $538.45 + $13.46 = $551.91 Mathematically though, this is equivalent to multiplying our original principal by the factor (1+0.025)4. If we do this, we will get our final amount is: $500.00 * (1+0.025) 4 = $ 551.91 Therefore after two years we can get $551.91. Know more Simple Interest i found this interesting link What is a Function
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