Question

You deposit $1,200.00 into an account and in three years of simple interest you have $1,380. What interest rate are you receiving? Decimals allowed, do not round.

Answer 1

Since simple interest doesn't involve compounding, the same amount gets added on every year. So, the equation for the simple interest received is $I = Prt$, where $I$ is the total interest, $P$ is the original deposit (or "principal"), $r$ is the interest rate, and $t$ is the time passed in years.

Plugging in our values, we can solve for the interest rate:

$I = Prt$
$\ 1380 - \ 1200 = (\ 1200)(r)(3 years)$
$\ 180 = (\ 1200)(r)(3 years)$
$r = .05 = \bf 5 \%$