Question

Raylan opened a savings account with $100. After 5 years there is $122. 50 in the account. What is his simple interest rate?

Answer 1

4.5% annually

Explanation:

Simple interest is the amount of interest added to a singular sum of money at a fixed rate.

Formula

The formula for simple interest is A = P(1+rt). In this formula, A is the total amount of money in the account, P is the original amount deposited, r is the rate of interest as a decimal, and t is the time in years.

Calculations

To find the rate, plug the information we know into the formula above

• 122.50 = 100(1+r*5)

Divide both sides by 100

• 1.225 = 1 + r*5

Subtract 1 from both sides

• 0.225 = r*5

Divide both sides by 5

• 0.045 = r

This gives us the rate as a decimal. So, to find the rate as a percent. Do this by moving the decimal 2 places to the right (or just multiply by 100, they do the same thing). This means that the rate of simple interest is 4.5%.