Question

Lily invested $750 in a savings account and earned $225 in interest at the end of 5 years.

What was the interest rate?

A.
5%

B.
5.5%

C.
6%

D.
6.5%

Answer 1

After 5 years Lily has $750+$225 = $975
The equation for interest rate looks like:
750 * x^5 = 975
x^5 = 975/750
x^5 = 1.3
x =
`\sqrt[5]{1.3}`
x = 1,0538
That means that interest rate is approximately 5,5% (B)

The reason for this calculation is because each year you multiply your money with interest rate and add that to your starting money.
After one year you will earn
750 + 750 * interest rate = money after 1 year.
After 5 years we multiply 5 times so our interest rate is x^5 and money after 5 years is 750 + 225.