Mr. Michalec opened an account with a deposit of 5000The 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 6500What is the annual interest rate on this account, write the rate as a decimal?

Solution

M r . M i c ha l ec 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 5000 T h e a cco u n t e a r n e d ann u a l s im pl e in t eres t . He 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 . A t t h e e n d o f 4 ye a rs, t h e ba l an ce o f t h e a cco u n t w a s 6500 Wha t i 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, w r i t e t h e r a t e a s a d ec ima l ?

Rate : 7.5%

Solution steps

Translate the problem into an equation:

6500 = 5000 (1 + r \cdot 4)

Solve for

r, 6500 = 5000 (1 + r \cdot 4) : r = 7.5%

Rate : 7.5%