Math 1 · Unit 8 · Lesson 1 · part 2 of 5

Both families, with money: the words first

Unit 7 gave you two families: lines add, exponentials multiply.

Both families, with money: the words first

Unit 7 gave you two families: lines add, exponentials multiply. This unit is both families with money. Simple interest adds the same number of dollars every year, so it is a line. Compound interest multiplies by the same factor every year, so it is an exponential. This lesson is the line.

First the words. When you put money in a savings account, the bank uses it, and pays you for that.

Principal, PThe money you start with, the amount you put in.

Interest, IThe extra money the bank pays you for using your money. (On a loan it goes the other way: the extra you pay the bank.)

Interest rate, rThe percent paid each year. To calculate, write it as a decimal: 5% is 0.05.

Balance, AHow much is in the account now: the principal plus the interest so far.

Percent to decimal

Percent means out of 100, so divide by 100, which moves the decimal point two places left.

5% = 0.05 12% = 0.12 3.5% = 0.035 100% = 1 0.8% = 0.008

Watch the small ones: 5% is 0.05, not 0.5.

Decimal back to percent

Multiply by 100, which moves the point two places right.

0.07 = 7% 0.2 = 20% 0.045 = 4.5%

Where to go next

Next: Simple interest adds the same amount every yearSimple interest pays the rate on the principal only, so you earn the same amount every year. All the partsSimple Interest, the Line in Money