Question

Sanjay invests 700 dollars in an account paying simple interest at a rate of 2. 5% per year. Calculate the value of his investment at the end of 6 years

Answer 1

Explanation:

so, $700 at 2.5% per year for 6 years.

after 1 year he has

700 × 1.025 = $717.50

why can we do that ?

because adding 2.5% to 100% results in 102.5%.

102.5% of 100% is 100% × 1.025.

always remember : a % is always a ratio of units per 100.

so, e.g. 2.5% of 700 is

700 × 2.5/100 = 700 × 0.025 = 17.5

when we add this to the original 700, we get

700 + 700×0.025 = 700(1 + 0.025) = 700×1.025

now, when we do the same thing (multiplying the balance at the end of a year by 1.025) year after year after year ..., we get after 6 years

700×1.025×1.025×1.025×1.025×1.025×1.025 =

= 700 × 1.025⁶ = $811.7853927... ≈ $811.79