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You want to put some money into a simple interest account. It pays 5% interest annually for 4 years. You would like to earn $600 in interest. How much money do you need to put in?

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We will use the formula for simple interest.

I = PRT

where I is interest, P is principal, R is rate of interest and T is time.

P = I / RT

P =  600 / 4 × 5%

We need to write 5% as a decimal fraction → 5/100 = 0.05

Therefore,

P = 600 / 4 × 0.05

P = 600 / 0.2

p = 3000

You would need to put in $ 3000  in order to earn a $ 600 interest after 4 years at the annual interest rate of 5%.


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