Question

If you invest $250.00 in an account that pays a simple interest rate of 4%, how long will you need to leave the money in the account before you earn $25.00 in interest?

Answer 1

Explanation:

1. A = P(1 + rt) is the formula for simple interest where A is the final amount, P is the principal amount, r is the interest rate (annual), and t is the number of time periods, or time in years (most often)

2. $25 of interest means your total amount will be $275, so A = $275. P = $250. r = .04. We are trying to find t.

3. $275 = $250(1+.04t)

4. (275/250)(1.04) = t t = 1.05

5. This means you will need to wait 2 years to earn $25 in interest