94 Part 1: The World of Numbers
Suppose you know that you need $2,000 to pay for a vacation three years from now, and you’d
like that $2,000 to be the interest you earned on your savings in a bank that pays you 2 percent
interest. Start with the formula I = Prt and fill in what you know. Interest is 2,000, rate is 0.02,
and time is 3 years.
I = Prt
2,000 = P v 0.02 v 3
Do what arithmetic you can on the right side.
2,000 = P v 0.06
Then find P, the amount of principal you need to make that happen, by dividing 2,000 by 0.06.
Don’t be discouraged when you find that you need about $33,333.33.
What if you could only deposit $5,000? How long would it take to earn $2,000 in interest? The
easy answer is “a lot longer” but how long? Set up the formula with what you know. You want
$2,000 in interest, you want to deposit a principal of $5,000, and the bank will pay you 2 percent
per year.
I = Prt
2,000 = 5,000 v 0.02 v t
2,000 = 100 v t
2,000 z 100 = t
It will take 20 years. Patience will be required.Calculating Tax
Most countries ask their citizens to pay income tax, a percent of what they earn, to fund the
government. Most states have a sales tax, a percentage of each sale that goes to fund local
government. There are a great many rules about what is and isn’t subject to these taxes and
under what conditions you might not have to pay them, and every country or state sets its own
rate. It legislates what percent of your income or the purchase price you must pay in tax.
Whatever differences there may be, the tax is a percent of your income or a percent of your
purchase. If you go out shopping and spend $273 in Colorado, the state sales tax will be 2.9
percent of your purchase. 2.9% of $273 is 0.029 v 273 = 7.917, which rounds to $7.92. That would
be added on to your bill of $273, bringing your total to $273 + $7.92 = $280.92.
If you made the same purchase in Illinois, the state would ask for 6.25 percent, so your tax would
be 0.0625 v 273 = 17.0625, which rounds to $17.06. That would make your bill $273 + $17.06 =
$290.06.