Five years ago Ruth made a deposit of 500 into a savings acc

Five years ago, Ruth made a deposit of $500 into a savings account that pays simple interest. She made no further deposits, and now her account is worth $750. What was the rate of interest per year?

A. 2%

B. 4%

C. 9%

D. 10%

Solution

D. Simple interest problems use the formula I = prt, where I is the amount of interest, p is the principal or the amount saved or invested, r is the rate of interest, and t is the amount of time in which the interest is accruing. In this problem you are asked to find the rate of interest given that Ruth has earned $250 in interest over 5 years. Substitute the information into the formula to get $250 = $500(r)5 and solve for r. $250 = $2,500r; r = 0.10 or 10%.