Question

How much money must you deposit in a simple interest account to earn $500 in 5 years at 4% annual interest?

Answer 1

Begin by writing the interest formula:

Interest = Principal × Rate × Time or I = Prt

Filling in the formula, we have:

500 = (P)(.04)(5)

~simplify right side

500 = 0.2P

~solve

2500 = P

This means our principal or the amount deposited is $2500.