Question

What is the simple interest rate on a $2150 investment paying $704.34 interest in 7.8 years? (rounded to the nearest tenth of a percent)

Answer 1

We have to calculate the simple interest rate on a $2150 investment paying $704.34 in interest in 7.8 years.

We can express the simple interest as:

`I=nCr`

where I is the total interest paid, n is the number of periods, C is the principal and r is the nominal annual rate.

We then can calculate the rate as:

`\begin{gathered} I=nCr \\ r=(I)/(nC) \\ r=(704.34)/(7.8\cdot2150) \\ r=(704.34)/(16770) \\ r=0.042 \\ r=4.2\% \end{gathered}`

Answer: the simple interest rate is 4.2%