Question

Terrence opens a savings account with a deposit of $1000. After 1 year he receives $50 in interest. What is the annual interest rate a) 5%. B) 20% c) 10% D) 15%

Answer 1

Answer:

Step-by-step explanation:

So, I'm pretty sure this is a problem about compound interest.

The formula for compound interest is A = p(1 + r/n)^nt

For this problem, $1000 is p, the initial amount; A is the total amount, or $1050.

What the problem is asking for is r, the interest rate, which is divided by n. N is the number of times the interest rate is compounded per year; Since the question is asking for the annual interest rate, N would be equal to 1. And because Terrence is has only left his money in for a year, t would also be equal to one.

So, by filling in the formula some, we get this:

$1050 = $1000(1 + r/1)^1*1

To find r, we would need to isolate it in the problem.

1. First, distribute $1000 to the parenthesis(keep in mind that 1000, is also equal to 1000/1:

1050 = (1000 + 1000r/1)^1

2. Then subtract 1000 from both sides:

50 = (1000r/1)^1

3. Multiple both sides by one:

50 = (1000r)^1

4. Divide both sides by 1000:

.05 = r^1 or .05 = r.

The answer is A, 5%.