4.STEP TO PROBLEMS OF INTEREST. IN THE PREVIOUS EXAMPLE,MICHELLE WILL...

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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

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If an event is certain to occur, the probability is 1.

pay back the $450 in interest as well as the principal,

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If an event is certain not to occur (impossible),

$2,500. Therefore, she will pay her uncle $2,500 + $450

the probability is 0.

= $2,950.

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If you know the probability of all other events

In a simple interest problem, the rate is an annual, or

occurring, you can find the probability of the

yearly, rate. Therefore, the time must also be expressed in

remaining event by adding the known probabili-

years.

ties together and subtracting their total from 1.