Example 1: Robyn has decided to deposit $400 in her bank account. She will earn $18 simple interest in 12 months. Find the annual interest rate.
Solution:
I = Prt [Formula for simple interest]
18 = 400(r)(1) [Substituting the values for I, P and t]
18 = 400r [Simplify]
0.045 = r [Dividing both sides by 400]
Hence, Robin deposited the money in the bank at an annual interest rate of 0.045 or 4.5%.
Example 2: Angelica is purchasing a car priced at $16,000 and has taken a loan to pay for the car. If the simple interest amount that she has to pay is $4,800 for 5 years, find the annual interest rate.
Solution:
I = Prt [Formula for simple interest]
4800 = 16000(r)(5) [Substitute for I, P and t]
4800 = 80000r [Multiply]
0.06 = r [Dividing both sides by 80000]
Hence, the annual rate of interest for the car is 0.06 or 6%.
Example 3: Find the annual rate of interest if the principal amount is $2000, the time is 18 months, and the interest amount is $210.
Solution:
Find the annual interest rate using the formula, I = Prt
First, we will express the given time in years. For that, we will divide the number of months by 12,that is,
\(\frac{18}{12}= \frac{3}{2} = 1\text{ }\frac{1}{2}=1.5\) years
Now, substitute the values in the formula.
210 = 2000(r)(1.5)
210 = 3000r [Multiply]
0.07 = r [Dividing both sides by 3000]
Hence, the annual rate of interest is 0.07 or 7%.
