Question

James deposits $600 in an account that pays 4% simple interest, and $1200 in a second account which has a higher interest rate but is more risky. What interest rate must he get on the second account in order to earn at least $132 in interest for the year?

Answer 1

1) $600 deposited at 4% simple interest for one year generates:

$600 * 4% = $600 * 0040 = $24

2) If he wants to earn $132 in interest for the year, he yet needs to generate $132 - $24 = $108 (additional)

3) The interest rate to generate $108 on a deposit of $1200 in a year, at simple interest is:

$1200 * (r) = $108 => r = 108 / 1200 = 0.09 = 9/100 = 9%

Answer: 9%