Question

Mr. Vasquez opened an account with a deposit of $6000. the account earned annual simple interest and he did not make any additional deposit or withdrawals. At the end of 5 years the balance was $6864. What is the annual interest rate on the account?

Answer 1

Simple interest formula:

A = P(1 + rt)

where A is the final amount, P is the principal, r is the interest rate (as a decimal), and t is time.

Given that t is in years, then r will be the annual interest rate.

Substituting with A = 6864, P = 6000, and t = 5, we get:

`\begin{gathered} 6864=6000\cdot(1+r\cdot5) \\ (6864)/(6000)=1+r\cdot5 \\ 1.144-1=r\cdot5 \\ (0.144)/(5)=r \\ 0.0288=r \end{gathered}`

The annual interest rate is 0.0288 or 2.88%