Question

Owen’s grandmother put some money into his savings account on the day he was born. Today, Owen turns 18 years old, and he’s discovered that he has earned $225 in simple interest on his grandmother’s money. If the yearly interest rate was 5%, how much money did his grandmother deposit at the time of his birth?

Answer 1

The answer is $250.

Explanation:

First, the money that his grandmother deposited is called the principal, P. Substitute the given values into the formula, interest equals principal times rate times time, and solve for P. Here, I is 225 dollars and t is 18 years.

Next, the percent given represents the interest rate, r, but first it must be changed to a decimal. To change it, move the decimal point 2 places to the left.

Now, multiply point 0, 5, and 18 to simplify the right side of the equation. The product is point nine.

Finally, divide both sides of the equation by .9 . The result is P equals $225 The principal, or original deposit, is $250.

Answer 2

Explanation:

The formula for simple interest is prt = I, where p is the initial investment (our unknown in this case), r is the interest rate in decimal form, t is the time in years, and I is the interest earned. That is NOT the same as the amount of money in the account t years later.

For us,

p = ??,

r = .05,

t = 18, and

I = 225.

Filling in:

p(.05)(18) = 225 and

.9p = 225 so

p = 250