Mr. Flores opened an account with a deposit of $5,000.
• The account earned annual simple interest.
• He did not make any additional deposits or withdrawals.
• At the end of 4 years, the balance of the account was $6,500.
What is the annual interest rate on this account?
Mr. Flores opened an account with a deposit of $5,000.
• The account earned annual simple interest.
• He did not make any additional deposits or withdrawals.
• At the end of 4 years, the balance of the account was $6,500.
What is the annual interest rate on this account?
5.8%
7.5%
3.3%
1.9%
To calculate the annual interest rate, we can use the formula for simple interest:
Simple Interest = Principal x Rate x Time
Given:
Principal = $5,000
Time = 4 years
Amount = $6,500
Interest = Amount - Principal = $6,500 - $5,000 = $1,500
Using the formula:
$1,500 = $5,000 x Rate x 4
$1,500 = $20,000 x Rate
Rate = $1,500 / $20,000
Rate = 0.075 or 7.5%
Therefore, the annual interest rate on this account is 7.5%.