Question

If you pay $5,500 for a simple interest note that will be worth $6,000 in 21 months,

what annual simple interest rate will you earn?

Answer 1

Answer: The annual simple interest rate is 5.19%

Explanation:

The formula for determining simple interest is expressed as

I = PRT/100

Where

I represents interest paid on the simple interest note.

P represents the principal or amount paid for the simple interest note.

R represents interest rate

T represents the duration in years.

From the information given,

P = 5500

T = 21 months = 21/12 = 1.75 years

I = 6000 - 5500 = $500

500 = (5500 × R × 1.75)/100

500 = 9625R/100 = 96.25R

R = 500/96.25

R = 5.19%

Answer 2

5.19%

Explanation:

The amount of an account (A) earning simple interest rate r for time t on principal P is ...

A = P(1 +rt)

Filling in the given values and solving for r gives ...

6000 = 5500(1 +r(21/12))

12/11 = 1 + r(7/4) . . . . . . . . . . divide by 5500, simplify fractions

1/11 = r(7/4) . . . . . . . . subtract 1

4/77 = r . . . . . . . . . . . multiply by 4/7

r ≈ 0.051948 ≈ 5.19%

You will be earning about 5.19% annual simple interest.