Money Math

Interest and Percent

Below are money word problems that calculate interest and percent. The student will also need to
understand the units of United States currency including coins (dimes, nickels, etc.), cents, and dollars.
You might need a special calculator for some of the calculations, but a lot of phones have the "x to the
power of y" feature needed for compound interest.
Formulas Needed
There are two main formulas you will need for the problems on this page:
Simple interest
I=Pxrxt
where I = Interest, P = principal, r = interest rate, t = time
Compound interest
Future Value = P x (1 +r⁄ n)nt
where P = principal, r = interest rate, t = time in years, n = number of times per year interest is
compounded
Compound Interest = Future Value - P
Practice Problems
1) You invested $1272 in a business. At the end of the year, you earn 3% interest. How much money did
you earn?
Answer:
This is simple interest as it wasn't being compounded throughout the year. So you use the simple interest
formula:
I=Pxrxt
P = the principal or $1272 in this case
r = interest rate which is 3%. We write that as 3/100 or .03 in the formula.
t = time, in this case that is 1 for 1 year
I = 1272 x .03 x 1
I = $38.16
2) You put $3000 in the bank. The money earns a simple interest rate of 2.5%. How much money will you
earn in interest over the next 10 years?
I=Pxrxt
I = $3000 x .025 x 10
I = $750
You will earn $750 in interest over 10 years.
3) Consider problem number 2 now with compounding interest. You put $3000 in the bank at an interest
rate of 2.5%. Now the interest is compounded monthly. How much interest will you earn over 10 years?
How much more interest did the deposit earn with compound interest vs. simple interest?
Future Value = P x (1 +r⁄ n)nt
P = principal which is $3000
r = interest rate which is 2.5% or .025
t = time in years which is 10
n = number of times per year the interest is calculated which is 12 for each month of the year
FV = 3000 x (1 +.025⁄ 12)10 x 12
FV = 3000 x 1.28369154...
FV = $3,851.07
Now subtract the original principal from the future value to get the compound interest:
Compound interest = $3,851.07 - $3,000 = $851.07
For the second part of the problem we compare the compound interest with the simple interest figured in
problem #2:

Compound interest - Simple interest

$851.10 - $750 = $151.10
You can see that by using compound interest the deposit earned an additional $151.10.
How to solve Age Word Problems?
If the problem involves a single person, then it is similar to an Integer Problem. Read the
problem carefully to determine the relationship between the numbers. This is shown in
the examples involving a single person.
If the age problem involves the ages of two or more people then using a table would be a good
idea. A table will help you to organize the information and to write the equations. This is shown
in the examples involving more than one person.
Related Topics: More Algebra Word Problems
How to solve Age Problems Involving A Single Person?
Example:
1. Five years ago, John’s age was half of the age he will be in 8 years. How old is he now?
Solution:
Step 1: Let x be John’s age now. Look at the question and put the relevant expressions above it.

Step 2: Write out the

equation.

Isolate variable x

Answer: John is now 18 years old.

2. John is twice as old as his friend Peter. Peter is 5 years older than Alice. In 5 years, John will
be three times as old as Alice. How old is Peter now?

Solution:

Step 1: Set up a table.

 age now age in 5 yrs

John

Peter

Alice

Step 2: Fill in the table with information given in the question.

John is twice as old as his friend Peter. Peter is 5 years older than Alice. In 5 years, John will be
three times as old as Alice. How old is Peter now?

Let x be Peter’s age now. Add 5 to get the ages in 5 yrs.

age now age in 5 yrs

John 2x 2x + 5
Peter x x+5
Alice x–5 x–5+5

Write the new relationship in an equation using the ages in 5 yrs.

In 5 years, John will be three times as old as Alice.

2x + 5 = 3(x – 5 + 5)
2x + 5 = 3x

Isolate variable x
x = 5

Answer: Peter is now 5 years old.

How to solve Work word problems?

The formula for “Work” Problems that involve two persons is
This formula can be extended for more than two persons. It can also be used in problems that
involve pipes filling up a tank.
Example 1:

Peter can mow the lawn in 40 minutes and John can mow the lawn in 60 minutes. How long will
it take for them to mow the lawn together?

Solution:
Step 1: Assign variables:

Let x = time to mow lawn together

Step 2: Use the formula:

Step 3: Solve the equation

The LCM of 40 and 60 is 120

Multiply both sides with 120

Answer: The time taken for both of them to mow the lawn together is 24 minutes.

Example 2:
Jane, Paul and Peter can finish painting the fence in 2 hours. If Jane does the job alone she can
finish it in 5 hours. If Paul does the job alone he can finish it in 6 hours. How long will it take
for Peter to finish the job alone?Solution:
Step 1: Assign variables:
Let x = time taken by Peter

Step 2: Use the formula:

Step 3: Solve the equation

Multiply both sides with 30x

Answer: The time taken for Peter to paint the fence alone is hours.

Directly Proportional Problems

There are many situations in our daily lives that involve direct proportion.
For example, a worker may be paid according to the number of hours he worked. The two
quantities, the number of hours worked (x) and the amount paid (y), are related in such a way
that when x changes, y changes proportionately.

In general, when two variables x and y are such that the ratio yxyx remains a constant, we say
that y is directly proportional to x.
If we represent the constant by k, then we can get the equation:
yxyx = k or y = kx where k ≠ 0.

In notation, direct proportion is written as

y∝x
Example 2:
Jane ran 100 meters in 15 seconds. How long did she take to run 2 meter?
Solution:
1001510015 = y2y2
⇒ y = 1510015100 × 2
⇒ y = 0.3

Answer: She took 0.3 seconds

Example 3:
A car travels 125 miles in 3 hours. How far would it travel in 5 hours?
Solution:
12531253 = y5y5
⇒ y = 12531253 × 5
⇒ y = 2081320813
Answer: He traveled 2081320813 miles.

Distance Word Problems

Distance problems are word problems that involve the distance an object will travel at a certain
average rate for a given period of time.

The formula for distance problems is: distance = rate × time or d = r × t.

Distance Problems: Traveling At Different Rates

Example:
A bus traveling at an average rate of 50 kilometers per hour made the trip to
town in 6 hours. If it had traveled at 45 kilometers per hour, how many more
minutes would it have taken to make the trip?

Solution:
Step 1: Set up a rtd table.

r t d
Case 1
 Case 2

Step 2: Fill in the table with information given in the question.

A bus traveling at an average rate of 50 kilometers per hour made the trip to
town in 6 hours. If it had traveled at 45 kilometers per hour, how many more
minutes would it have taken to make the trip?

Let t = time to make the trip in Case 2.

r t d
Case 1 50 6

Case 2 45 t

Step 3: Fill in the values for d using the formula d = rt

r t d
Case 1 50 6 50 × 6 = 300
Case 2 45 t 45t

Step 4: Since the distances traveled in both cases are the same, we get the
equation:

45t = 300

Isolate variable t
Step 5: Beware - the question asked for “how many more minutes would it have
taken to make the trip”, so we need to deduct the original 6 hours taken.

Answer: The time taken would have been 40 minutes longer.