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In a simple interest problem, what does the principal mean?
AThe interest paid out
BThe yearly rate charged
CThe money first deposited
DThe number of years
Answer & Solution
Correct answer: C. The money first deposited
1. The principal is the starting sum put into the account or taken as a loan.
2. The bank then pays or charges interest on that starting sum.
3. The rate and the time are separate quantities in the formula.
_Source: OpenStax Intermediate Algebra (CC BY 4.0), Ch 2 "Solving Linear Equations", section 2.2 Use a Problem Solving Strategy_