Question

At the end of year 4, the account was valued at $2433.91. At the end of year 5, the account was valued at $2494.76. What was the interest rate, as a percent? Round your answer to the nearest tenth.

a) 2.5%
b) 3.2%
c) 3.8%
d) 4.1%

Answer 1

To calculate the interest rate, subtract the initial account value from the final value to find the interest earned. Divide this by the initial value and time to find the rate. The rate determined is approximately 2.5%, which is option (a).

Step-by-step explanation:

To find the interest rate for the account that has grown from $2433.91 to $2494.76 in one year, we can use the formula for simple interest, which is:

Interest = Principal × rate × time

In this case, the interest earned over the year is the difference between the two amounts: $2494.76 - $2433.91 = $60.85.

We can now insert the values we have into the simple interest formula:

$60.85 = $2433.91 × rate × 1 year

To solve for the rate, we divide the interest earned by the product of the principal and time:

rate = $60.85 / $2433.91

Calculating the above gives us the rate as a decimal, which we can then convert to a percentage by multiplying by 100.

After doing the math, we find that the rate is approximately 2.5%, which rounds to 2.5% when rounded to the nearest tenth.

The answer to the question, 'What was the interest rate, as a percent?' is therefore 2.5%, which is option (a) 2.5%.