Question

You want to put $2,500 in a simple interest account. It has a 4% annual interest rate. How long must you invest that money to earn $500 in interest? CLEAR CHECK 1.25 years 2.5 years 5 years 20 years

Answer 1

5 years

Explanation:

Interest is computed using the formula ...

I = Prt

where I is the amount of interest ($500), P is the principal invested ($2500), r is the annual interest rate (4%), and t is the number of years.

Filling in the given values, you have ...

$500 = $2500·0.04·t

500 = 100t . . . . . . . . . . . . simplify, divide by $

5 = t . . . . . . . . . . . . . . . . . . divide by 100

You must invest that money for 5 years to earn $500 in interest.