Question

The simple interest formula is I = Prt, where I represents simple interest on an amount, P, for t years at a rate of r, where r is expressed as a decimal What is the amount of money, P, that will generate $40 in interest at a 10% interest rate over 5 years?

Answer 1

Answer:

Using the simple interest formula

I = P r t

P = I /  (.10 * 5) = 2 I = 80 $      at a 10% rate / year

Note in 1 yr   I = 80 * .1 * 1 = 8 $   so 40$ will be generated in 5 yrs

If the money were reinvested

A = P (1 + i)^n = 80 ( 1.1)^5 = 128.84  giving 48.84 interest after 5 years