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# Word Problems and Data Analysis: GED Test Prep (page 3)

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Updated on Mar 9, 2011

### Calculating Interest

Interest is a fee paid for the use of someone else's money. If you put money in a savings account, you receive interest from the bank. If you take out a loan, you pay interest to the lender. The amount of money you invest or borrow is called the principal. The amount you repay is the amount of the principal plus the interest. The formula for simple interest is found on the formula sheet in the GED. Simple interest is a percent of the principal multiplied by the length of the loan:

Interest = principal × rate × time

Sometimes it may be easier to use the letters of each as variables:

I = prt

Example

Michelle borrows \$2,500 from her uncle for three years at 6% simple interest. How much interest will she pay on the loan?

Michelle will pay \$450 in interest.

Some problems will ask you to find the amount that will be paid back from a loan. This adds an additional step to problems of interest. In the previous example, Michelle will owe \$450 in interest at the end of three years. However, it is important to remember that she will pay back the \$450 in interest as well as the principal, \$2,500. Therefore, she will pay her uncle \$2,500 + \$450 = \$2,950.

In a simple interest problem, the rate is an annual, or yearly, rate. Therefore, the time must also be expressed in years.

Example

Kai invests \$4,000 for nine months. Her investment will pay 8%. How much money will she have at the end of nine months?

Kai will earn \$180 in interest.

### Probability

Probability is expressed as a fraction and measures the likelihood that a specific event will occur. To find the probability of a specific outcome, use this formula:

Example

If a bag contains 5 blue marbles, 3 red marbles, and 6 green marbles, find the probability of selecting a red marble:

• If an event is certain to occur, the probability is 1.
• If an event is certain not to occur (impossible), the probability is 0.
• If you know the probability of all other events occurring, you can find the probability of the remaining event by adding the known probabilities together and subtracting their total from 1.