Abby opened an account with a deposit of 3,000. She did not make any additional deposits or withdrawals. The account earns simple annual interest. At the end of 8 years, the balance of the account was 3,600. What was the annual interest rate on this account?

Solution

A bb y o p e n e d an a cco u n t w i t h a d e p os i t o f 3, 000. S h e d i d n o t mak e an y a dd i t i o na l d e p os i t s or w i t h d r a w a l s . T h e a cco u n t e a r n s s im pl e ann u a l in t eres t . A t t h e e n d o f 8 ye a rs, t h e ba l an ce o f t h e a cco u n t w a s 3, 600. Wha t w a s t h e ann u a l in t eres t r a t e o n t hi s a cco u n t ?

Rate : 2.5%

Solution steps

Translate the problem into an equation:

3600 = 3000 (1 + r \cdot 8)

Solve for

r, 3600 = 3000 (1 + r \cdot 8) : r = 2.5%

Rate : 2.5%