Question

Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question. Olivia deposited $800 at her local credit union in a savings account at the rate of 6.2% paid as simple interest. She will earn interest once a year for the next 7 years. If she were to make no additional deposits or withdrawals, how much money would the credit union owe Olivia in 7 years?

Answer 1

$1,147.2

Step-by-step explanation:

Given:

Principle amount deposited = $800

The rate of interest paid, r = 6.2% = 0.062

Duration, t = 7 years

Now,

The simple interest is calculated as:

Interest = Principle × Rate × Time

on substituting the respective values, we have

Interest = $800 × 0.062 × 7

or

Interest = $347.2

Therefore,

The total amount owed by the credit union = Principle + Interest

= $800 + $347.2

= $1,147.2