Question

Note: Enter your answer and show all the steps that you use to solve this problem in the space provided.

Yvonne put $4,000 in a savings account. At the end of 3 years, the account had earned $960 in simple interest.

A. How much does she have in her account at the end of 3 years?
B. At what annual simple interest rate did the account grow? Show your work.
C. How many more dollars would she have in her account if the interest rate were 1% greater? Show your work.

Answer 1

A. $4,960

B. 8%

C. $120

Explanation:

Part A

The amount in the account at the end of 3 years is the original amount ($4000) plus the earned interest ($960). That sum will be ...

$4,000 + 960 = $4,960 . . . account balance

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Part B

The amount of interest is computed using the formula ...

I = Prt

where I is the interest earned, P is the principal invested, r is the annual rate, and t is the number of years. Putting the given values into this equation, we can solve for r:

960 = 4000·r·3

960/12000 = r = 0.08 = 8%

The interest rate was 8%.

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Part C

The additional interest can be computed using the same formula as for part B.

I = Prt

I = 4000·0.01·3 = 120

The additional interest earned at a 1% higher rate would be $120.