Question

If you want to earn 2% annual simple interest on an investment, how much should you pay for a note that will be worth $15,500 in 10 months? (Round your answer to two decimal places.)

Answer 1

Explanation:

To solve this problem, we can use the simple interest formula:

I = P*r*t

where I is the interest earned, P is the principal (the initial investment), r is the interest rate (as a decimal), and t is the time (in years).

Here, we want to find P, so we'll rearrange the formula:

P = I/(r*t)

We know that the final value of the investment (including interest) is $15,500, and the time is 10 months (or 10/12 years). We can plug in the numbers:

I = $15,500 - P

r = 0.02

t = 10/12

P = (15,500 - P)/(0.02*(10/12))

P = (15,500 - P)/(0.1667)

P = 93,000 - 6P

7P = 93,000

P = $13,285.71

Therefore, you should pay $13,285.71 for the note if you want to earn 2% annual simple interest and have it be worth $15,500 in 10 months.

Hope that helps :)