Answer: The interest rate on the $895 investment is approximately 16%.
Explanation:
To find the interest rate, we can use the formula for simple interest:
Interest = Principal × Rate × Time
Given:
Principal (initial investment) = $895
Interest earned = $716
Time period = 5 years
We rearrange the formula to solve for the rate:
Rate = Interest / (Principal × Time)
Substituting the given values:
Rate = $716 / ($895 × 5)
Now, let's calculate the values:
Rate = $716 / $4475
Rate ≈ 0.1599
To convert the decimal to a percentage, we multiply by 100:
Rate ≈ 0.1599 × 100
Rate ≈ 15.99%
Therefore, the interest rate on the $895 investment is approximately 15.99% or rounded to 16%.
This means that for the $895 investment, an annual interest of $716 has been earned over a period of 5 years. It indicates that the investment has grown by an average of 16% per year.