Question

Suppose the total interest of a 5-year deposit of $60,000 is $8000. Assuming interest is calculated based on a simple annual interest rate, find the monthly flat rate. (When you input your answer to Moodle, ignore the % sign and round your answer to 2 decimal places, if necessary. For example, you should input 1.23 if your answer is 1.2345%)

Answer 1

The monthly flat rate of a $60,000 deposit with a total interest of $8000 over 5 years is found using the simple interest formula, resulting in approximately 0.22%.

Step-by-step explanation:

Calculating Monthly Flat Interest Rate

Given a total interest of $8000 on a 5-year deposit of $60,000, we want to find the monthly flat rate. We use the simple interest formula:

Interest (I) = Principal (P) × Rate (r) × Time (t)

In the student's scenario, the interest is $8000, the principal is $60,000, and the time is 5 years. To find the annual simple interest rate, we rearrange the formula to solve for r:

r = I / (P × t)

Substituting the given values:

r = $8000 / ($60,000 × 5)

After calculating the above, we get r as a yearly rate. To find the monthly rate, we divide the annual rate by 12.

Let's calculate the values step by step:

Calculate the annual rate:
r = $8000 / ($60,000 × 5) = $8000 / $300,000 = 0.02667 (which is 2.667% annually)

Find the monthly rate by dividing the annual rate by 12:
Monthly rate = 0.02667 / 12 ≈ 0.0022225

Express the monthly rate as a percentage and round to two decimal places:
0.0022225 × 100 ≈ 0.22%

The monthly flat rate is approximately 0.22% (two decimal places).