Question

A mutual fund pays 6% interest on all funds deposited for 1 month or longer. Jim wants to take advantage of the 6%

interest rate and transfers a portion of his savings account to the mutual fund. After one year, Jim's investment in the
mutual fund has earned $125 in interest. How much of his savings did Jim invest in the mutual fund?

Answer 1

Jim invested $2,083.33 in the mutual fund to earn $125 in interest over a year, which was calculated using the simple interest formula, rearranged to solve for Principal.

Step-by-step explanation:

To determine how much Jim invested in the mutual fund, we use the formula for simple interest, which is Interest = Principal × Rate × Time. In this scenario, Jim earned $125 in interest over one year (which is the time) at an interest rate of 6% (0.06 in decimal form).

To find the principal (the initial amount invested), rearrange the simple interest formula to solve for the Principal:

Principal = Interest / (Rate × Time)

Using Jim's figures:

Principal = $125 / (0.06 × 1)

Principal = $125 / 0.06

Principal = $2083.33

Thus, Jim invested $2083.33 in the mutual fund to earn $125 in interest over one year.