Question

After 5 years, a $2,450 investment is worth $3,123.75.

What is the simple annual interest rate for this investment?

Answer 1

5.5%

Explanation:

To solve this problem we can use a modified version of the simple interest formula which is shown below:

`r=(I)/(Pt)`

I = interest amount

P = principal amount

t = time (years)

The first step is to find the interest gained from the investment.

`3,123.75-2,450=673.75`

Next, plug in the values into the equation:

`r=(673.75)/((2,450)(5))` Multiply the bottom values

`r=(673.75)/(12,550)` Divide the values

`r=.055`

The last step is to convert 0.055 into a percent:

`0.055(100)=5.5`

The interest rate is 5.5%