Question

Marvin used the money he received from

high school graduation gifts to start a new
savings account with a simple interest rate of
7.5%. After 12 years, the account had
earned $288. If there were no other deposits
or withdrawals, what was the original
amount placed in the account?
A. $240
B. $275
C. $320
D. $360

Answer 1

Correct choice: C. $320

Explanation:

Simple Interest

Definition: Interest calculated on the original principal only of a loan or on the balance of an account.

Unlike compound interest where the interest earned in the compounding periods is added to the new principal, simple interest only considers the principal to calculate the interest.

The interest earned is calculated as follows:

I=P.r.t

Where:

I = Interest

P = initial principal balance

r = interest rate

t = time

Marving is saving money in a savings account with a simple interest rate of r=7.5%=0.075. It's known that after t=12 years, the account had earned $288 interest. Substituting in the formula:

288 = P*0.075*12

Calculating:

288 = 0.9P

Dividing by 0.9:

P = $320

Correct choice: C. $320