Question

Example 5: You invest $25 000 into a simple interest Canada Savings Bond that pays interest annually.

a) If the future value is $29 375 at the end of the five years, what was the interest rate?

Answer 1

3.5%

Explanation:

Use the future value for simple interest equation:

`FV=p(1+rt)\\29375=25000(1+5r)\\1.175=1+5r\\5r=0.175\\r=0.035`

The interest rate was 0.035 (or 3.5%).