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An investment is made at 12.5% annual simple interest. The n
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30 Jul 2018, 09:44
30 Jul 2018, 09:44
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An investment is made at 12.5% annual simple interest. The number of years it will take for the cumulative value of the interest to equal the original investment is equalt to which of the following?
(A) 4
(B) 5
(C) 6
(D) 7
(E) 8
(A) 4
(B) 5
(C) 6
(D) 7
(E) 8
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Re: An investment is made at 12.5% annual simple interest. The n
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10 Aug 2018, 18:10
10 Aug 2018, 18:10
2
Expert Reply
sandy wrote:
An investment is made at 12.5% annual simple interest. The number of years it will take for the cumulative value of the interest to equal the original investment is equalt to which of the following?
(A) 4
(B) 5
(C) 6
(D) 7
(E) 8
(A) 4
(B) 5
(C) 6
(D) 7
(E) 8
We can assume the initial investment is $1000. Since the investment has a simple annual interest rate of 12.5%, in one year, the amount of interest accumulated is 1000 x 0.125 = $125. So it will take 1000/125 = 8 years to accumulate $1000 in interest.
Answer: E
Re: An investment is made at 12.5% annual simple interest. The n
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12 Aug 2018, 07:15
12 Aug 2018, 07:15
Expert Reply
Explanation
“Simple” interest means that the interest is calculated based on the initial amount every time; the interest earned is not included in future calculations. Each year, the investment pays 12.5%, or \(\frac{1}{8}\), of the original investment as simple interest.
As a result, it will take exactly 8 years for the cumulative interest to add up to the original investment.
Be careful not to apply the compound interest formula here. If the 12.5% interest is in fact compounded annually, it will take only about 6 years for the investment to double in value.
“Simple” interest means that the interest is calculated based on the initial amount every time; the interest earned is not included in future calculations. Each year, the investment pays 12.5%, or \(\frac{1}{8}\), of the original investment as simple interest.
As a result, it will take exactly 8 years for the cumulative interest to add up to the original investment.
Be careful not to apply the compound interest formula here. If the 12.5% interest is in fact compounded annually, it will take only about 6 years for the investment to double in value.
