Question

You put $500 in a savings account. The account earns $20 simple interest in 6 months. What is the annual interest rate? Write your answer as a percent

Answer 1

8%

Explanation:

For simple interest, we use the equation I = PRT, where I is the interest earned, P is the principal/amount invested, R is the rate as a decimal, not percentage, and T is the time in years.

For this problem, we have to use 0.5 for T, because 6 months is 1/2 a year.

20 = (500)(r)(0.5)

20 = 250r

r = 0.08 = 8%