Question

A bank says you can double your money in 10 years if you put $1,000 in a simple interest account. What annual interest rate does the bank pay?

Answer 1

The answer to this is 10%.

Answer 2

The simple interest formula allows us to calculate I, which is the interest earned or charged on a loan. According to this formula, the amount of interest is given by I = Prt, where P is the principal, r is the annual interest rate in decimal form, and t is the loan period expressed in years. The rate r must be converted from a percentage into decimal form.

Then, 2,000 = 1,000 * r * 10 ;
Finally, r = 2 ÷ 10 = 20 ÷ 100 = 0.02