Jerome opened an account with a deposit of $5,500.
The account earned annual simple interest.
He did not make any additional deposits or withdrawals.
At the end of 8 years, the balance of the account was $6,380.
What is the annual interest rate on this account?
3%
5%
2%
4%
To calculate the annual interest rate, we can use the formula for simple interest:
Simple Interest = Principal x Rate x Time
In this case, the principal (initial deposit) is $5,500, the final balance after 8 years is $6,380, and the time is 8 years.
We can rearrange the formula to solve for the rate:
Rate = (Simple Interest / Principal) / Time
Rate = (($6,380 - $5,500) / $5,500) / 8
Rate = ($880 / $5,500) / 8
Rate ≈ 0.16 / 8
Rate ≈ 0.02
Therefore, the annual interest rate on this account is 2%.