You work in the Santa Monica California Community College fi

You work in the Santa Monica, California, Community College financial aid office. It is your responsibility to validate information that students\' families have put on their financial aid applications. A student indicated that last year the family listed $635 interest income from First National Bank on their 1040 income tax form. The family has indicated a savings amount of only $300. If the bank is paying simple interest of 3% annually, what should the family have in the bank account?

Solution

In a bank, the excess amount of interest earned on investments over the amount paid out for deposits is referred to as net interest income.This amount is taxable.

Now as the bank is paying simple interest 3% on the amount (x+$300)

As Interest=npr/100 (Simple interest considered)

$635=1*(x+300)*3/100

x=$20866.66

So the family will have=P+I+S=335+10.05+300=$675.05