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How to Solve Investment/Loan Problems on the ASVAB

You will see investment/loan problems on the ASVAB. These problems are primarily focused on simple interest rates for investments and loans, using the formula I = prt, where I is the interest, p is the principal, r is the rate of interest (in percentage), and t is the time.

The investment/loan problems you see on the Arithmetic Reasoning subtest are pretty simple. They’re nowhere near as difficult as similar situations in real life, where interest is compounded.

To solve these problems, replace what’s known in the interest formula and then solve for anything else.

John invests $1,500 for three years at an annual interest rate of 7 percent. How much will John have at the end of the three-year period?

Plug the known information into the interest formula, I = prt:

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Percent means “part of 100.” To convert percentage into a decimal, divide the percentage by 100.

So

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To convert a decimal into percentage, multiply by 100. You get 0.07 = 0.07 · 100 = 7 percent.

John will make $315 in interest. Adding this amount to his original investment of $1,500, John will have a total of $1,500 + $315 = $1,815.

That was pretty easy, so here’s another one for you.

You invest $700, and after five years you receive a total of $900. What was the annual interest rate?

On the surface, this one looks a bit more complicated, but you solve it the same way: Plug what’s known into the interest formula, I = prt, and solve for the rest.

You invested $700 and received $900. Therefore, you made $900 – $700 = $200 in interest.

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Expressed as a percentage, this amount is 0.057 × 100 = 5.7 percent.

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