Question

You put $5,000 into a CD for 3 years and earn $600 in interest. Using simple interest, calculate the interest rate

Answer 1

4%

Explanation:

To calculate the interest rate using simple interest, we can use the following formula:

`\sf \textsf{ Simple Interest } = \frac{ Principal * Time * \textsf{Interest rate } }{100}`

where

• Simple interest is the amount of interest earned
• Principal is the initial amount of money deposited
• Time is the length of time in years

In this case, we have the following values:

• Simple interest = $600
• Principal = $5,000
• Time = 3 years

Substituting these values into the formula, and simplify.

`\sf \$600 = \frac{\$5,000 * 3 * \textsf{Interest rate} }{100}`

`\sf \$600 =\frac{ \$15,000 * \textsf{Interest rate} }{100}`

`\sf \$600 = \$150 * \textsf{Interest rate}`

`\sf \textsf{Interest rate} = (\$600)/(\$150)`

`\sf \textsf{Interest rate} = 4`

Therefore, the interest rate is 4%.