Practice Questions
- Arnold invested $700 in a savings account. After one year, his account balance was $726.25. What percent annual interest did his bank pay?
- Amy invested $500 in a savings account that pays a fixed simple interest rate. After three years, her account balance is $552.50. What percent annual interest did her bank pay?
A. 3.5% B. 5.5% C. 10.5% D. 17.5%
Answers and Explanations
- The correct answer is 3.75%.
You can use the following formula to calculate the annual interest rate:
Plug in the given values to find the annual interest rate:
Hence, the interest rate as 3.75%.
Alternatively, the interest formula is
I = Prt
where I is the interest earned, P is the principal, r is the interest rate, and t is the time. Substituting in the values gives you
To convert this decimal answer into a percentage, simply multiply it by 100 to get 3.75%.
- The correct answer is 3.5%.
You can use the following formula to calculate the annual interest rate:
Plug in the given values to find the rate:
This value is for three years of interest, so dividing by 3 gives you the annual simple interest rate, which equals 3.5%. Hence, Choice (A) is correct.