Question

A savings account is set up so that the simple interest earned on the investment is moved into a separate account at the end of each year. If an investment of $7,000 accumulate $910 of interest in the account after 2 years. Show that what the annual simple interest rate is 6.5%​

Answer 1

The annual simple interest rate is calculated using the formula I = P × r × t. Given the principal of $7,000 and interest of $910 over 2 years, solving for the interest rate gives us an annual rate of 6.5%.

Step-by-step explanation:

To determine the annual simple interest rate, we can use the formula for simple interest:

I = P × r × t

Where I is the interest earned, P is the principal amount, r is the annual interest rate, and t is the time the money is invested in years.

Given that $7,000 has accumulated $910 of interest over 2 years, we can plug these values into the formula and solve for r:

910 = 7000 × r × 2

Divide both sides by 14,000 (which is 7000 × 2) to find r:

r = 910 ÷ 14000

r = 0.065

Converting the decimal to a percentage, we find that the annual simple interest rate is 6.5%.