Percent & Interest Calculations

Simple interest: I = P x R x T

Principal x Rate x Time. Interest earned stays constant each period.

Compound interest: A = P(1 + r/n)^(nt)

P = principal, r = annual rate, n = compounds per year, t = years

Example: $1000 at 5% compounded annually for 2 years:

A = 1000(1.05)^2 = 1000(1.1025) = $1,102.50

Simple interest would give: 1000 + 1000(0.05)(2) = $1,100

Compound always yields more than simple (for t > 1).

Percent of percent:

"What is 20% of 30% of 500?"

0.20 x 0.30 x 500 = 30

GRE trap: "A price increases 20% then decreases 20%. Is the final price the same as the original?"

NO. 100 x 1.20 x 0.80 = 96. It's 4% LESS than the original.

Reference:

Wikipedia: Interest

https://en.wikipedia.org/wiki/Interest