Question

Michael opened a bank account that earns simple interest with an initial deposit of $1,000. He made no other transactions throughout the year. At the end of the year, Michael had $1,080 in his account. What was the simple interest rate?

Answer 1

Michael earned a simple interest rate of 8% on his bank account. This rate was calculated using the simple interest formula and the fact that he made no additional transactions other than an initial deposit of $1,000 and had $1,080 at the end of the year.

Step-by-step explanation:

To determine the simple interest rate Michael earned on his bank account, we can use the simple interest formula. The formula for simple interest is I = P x r x t, where I is the interest earned, P is the principal amount deposited, r is the interest rate per period, and t is the time the money is invested for.

In Michael's case, the initial deposit (P) is $1,000, the amount in the account at the end of the year is $1,080, and since no other transactions were made, the difference of $80 is the interest earned (I). The time (t) the money is invested for is one year. Using the interest earned and the initial deposit we can rearrange the formula to solve for the interest rate (r) as follows:

I = P x r x t
80 = 1,000 x r x 1
80 = 1,000 x r
r = 80 / 1,000
r = 0.08 or 8%

Therefore, the simple interest rate Michael earned on his bank account is 8%.