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Question

You deposit

$350\$ 350

in an account. The account earns

$17.50\$ 17.50

simple interest in 2.5 years. What is the annual interest rate? The annual interest rate is

Solution

Verified

The formula for simple interest is I=prtI=prt where II is the amount of interest earned for an initial deposit of PP dollars invested at an annual interest rate of rr for tt years.

It is given that you deposit P=350P=350 dollars and earn I=17.50I=17.50 dollars in interest after t=2.5t=2.5 years. Therefore:

I=prtFormula for simple interest.17.50=350r(2.5)Substitute.17.50=875rMultiply 350 and 2.5.17.50875=875r875Divide both sides by 875.0.02=rSimplify.2%=rConvert to a percent.\begin{aligned} I&=prt&&\text{Formula for simple interest.}\\ 17.50&=350r(2.5)&&\text{Substitute.}\\ 17.50&=875r&&\text{Multiply 350 and 2.5.}\\ \frac{17.50}{875}&=\frac{875r}{875}&&\text{Divide both sides by 875.}\\ 0.02&=r&&\text{Simplify.}\\ 2\%&=r&&\text{Convert to a percent.} \end{aligned}

The annual interest rate is then 2%\boxed{2\%}.

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