Question

Julia wants to put $56,000 into a savings account for 8 years and increase her total to at least $100,000. Assuming the interest is not compounded, what rate of return does the account need to earn?

Answer 1

Answer: 9.82%

Explanation:

So first of all we need to put down our formulae. We know that:

Simple interest = Principal × Time× Rate / 100

However the question is looking for Rate , therefore we must re -arrange the equation and make Rate the subject . This will give us :

Rate= Interest × 100 / Time × Principal

Now , the question tells us that the Principal is $56,00 and the time is 8 years , but we do not know the interest. In the case , we will use the equation :

interest =Amount -Principal to find the interest ,since the total amount has been given to us.

100,000 - 56,000 = 44,000

Principal =56,000

Time = 8

Interest=44,000

Using the first formulae:

44,000×100 / 8×56,000 = 9.8

Rate is always in % so our answer is 9.82%

Answer 2

the account needs to earn a rate of return of at least 9.82% per year to increase Julia's total to $100,000 in 8 years with simple interest.

Explanation:

To find the rate of return that the account needs to earn, we can use the simple interest formula:

Simple Interest = Principal x Rate x Time

Where:

- Principal = $56,000

- Time = 8 years

- Simple Interest = $100,000 - $56,000 = $44,000

Plugging in the values, we get:

$44,000 = $56,000 x Rate x 8

Simplifying the equation, we get:

Rate = $44,000 / ($56,000 x 8) = 0.0982 or 9.82%

Therefore, the account needs to earn a rate of return of at least 9.82% per year to increase Julia's total to $100,000 in 8 years with simple interest.