Question

If you want to put $2,500 in a simple interest account with a 4% annual interest rate, how long must you invest that money to earn $500 in interest?

a) 4 years
b) 5 years
c) 6 years
d) 7 years

Answer 1

Using the simple interest formula I = PRT, it will take 5 years to earn $500 in simple interest with a $2,500 investment at a 4% annual interest rate. The correct answer is (b) 5 years.

Step-by-step explanation:

Calculating Time to Earn Interest

Let's calculate the time required to earn $500 in simple interest from a $2,500 investment at a 4% annual interest rate. To find the time (T), we use the simple interest formula I = PRT, where I is the interest earned, P is the principal amount, R is the rate of interest, and T is the time in years. Here, I = $500, P = $2,500, R = 4% (or 0.04 when expressed as a decimal), and T is what we want to find. The formula rearranges to T = I / (P * R).

Now plug in the values: T = $500 / ($2,500 * 0.04) = $500 / $100 = 5. So it will take 5 years to earn $500 in interest. Therefore, the correct answer is (b) 5 years.