IF $500 YIELDS $40 IN SIMPLE INTEREST OVER 2.5 YEARS, WHAT IS THE ANNUAL RATE?
P=500 40=500(R)(2.5)
R=?
T=2.5
I=$40
500*2.5*r = 40
r = 0.032
To find the annual interest rate, we can use the formula for simple interest:
I = P * R * T
Where:
I = Interest earned
P = Principal amount (initial amount of money)
R = Annual interest rate (in decimal form)
T = Time period (in years)
In this case, we are given that the principal amount, P, is $500, the interest earned, I, is $40, and the time period, T, is 2.5 years.
Let's substitute these values into the formula:
40 = 500 * R * 2.5
To find the annual interest rate, divide both sides of the equation by 500 * 2.5:
40 / (500 * 2.5) = R
This simplifies to:
0.032 = R
Therefore, the annual interest rate is 0.032, or 3.2% when converted to a percentage.