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Tommy earned $76 in interest after 5 years on a principal of $400. What is the annual interest rate?

A. 4%
B. 8%
C. 12%
D. 16%

User David Shim
by
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1 Answer

6 votes

Final answer:

Tommy's annual interest rate is calculated using the formula for simple interest. After dividing the total interest earned by the product of the principal and the time, we find a rate of 3.8%, which could be rounded to 4% if approximate answers are acceptable.

Step-by-step explanation:

To calculate the annual interest rate that Tommy earned from his principal of $400, we can use the formula for simple interest

Interest = Principal × rate × time

Here, Tommy earned $76 in interest over 5 years, so using the information we have:

$76 = $400 × rate × 5 years

To find the rate, we divide both sides by the principal and time:

Rate = $76 / ($400 × 5)

Rate = $76 / $2000

Rate = 0.038 or 3.8%

Checking the answer choices, none of them match exactly 3.8%, so Tommy's annual interest rate would typically be rounded to the nearest option available which would be 4% (Answer choice A). However, if precise matching is expected, this would not correspond to any option given.

User Niko Lang
by
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