Question

can someone help me with the second part of this question about annual simple interest? its driving me bonkers

Answer 1

@extrinix it says 133.33 is wrong

Answer 2

You have to work backwards.

The friend gave Bill a loan of 'x' dollars and in return would get the value of the mature CD which is $4,240.

The $4,240 amount is as if the friend earned 10% annual simple interest on his loan of 'x' dollars.

Simple interest formula:

A = P(1 + rt)

A is total amount (i.e. principal + interest)
P is the principal amount
r is the interest rate
t is time

We know the total amount is 4,240. We're trying to calculate the amount he loaned Bill which is our principal amount.
The rate is 10%.
The time is 3 months or 0.25 of a year. This is because he gave his friend the loan and then 3 months later when the CD matured, he was paid back.

Remember to convert the rate to a decimal first.

Can you find the answer now?

Answer 3

so would the equation i use to find P be
4240=P(1+.10*0.25)

Answer 4

Yes

Answer 5

would P be 4136.59

Answer 6

or would we subtract the initial $4000 to then be left with $136.59?

Answer 7

@tranquility

Answer 8

when using the simple interest formula is it a general rule to always convert your months to years?,

Answer 9

ah makes sense, thank you for all your help

Answer 10

No problem!