Question

After 5 years, a $2,450 investment is worth $3,123.75.

What is the simple annual interest rate for this investment?

Answer 1

Answer:

5.5%

Step-by-step explanation:

To solve this problem we can use a modified version of the simple interest formula which is shown below:

$r=\frac{I}{Pt}$

I = interest amount

P = principal amount

t = time (years)

The first step is to find the interest gained from the investment.

$3,123.75-2,450=673.75$

Next, plug in the values into the equation:

$r=\frac{673.75}{(2,450)(5)}$     Multiply the bottom values

$r=\frac{673.75}{12,550}$         Divide the values

$r=.055$

The last step is to convert 0.055 into a percent:

$0.055(100)=5.5$

The interest rate is 5.5%