QuestionHow much to deposit to earn \$500 in 5 years at 4\% simple interest?

Studdy Solution

STEP 1

Assumptions1. The interest to be earned is $500. The interest rate is4%
3. The time period is5 years4. The interest is calculated using simple interest, not compounding5. We are solving for the initial deposit amount

STEP 2

The formula for simple interest is $Interest = Principal\, amount \\times Interest\, rate \\times Time$ We can rearrange this formula to solve for the principal amount $Principal\, amount = Interest / (Interest\, rate \\times Time)$

STEP 3

Now, plug in the given values for the interest, interest rate, and time to calculate the principal amount.
$Principal\, amount = \$500 / (\% \\times5)$

STEP 4

Convert the percentage to a decimal value.
$4\% =0.04$ $Principal\, amount = \$500 / (0.04 \\times)$

STEP 5

Calculate the principal amount.
$Principal\, amount = \$500 / (0.04 \\times5) = \$2,500$ You must deposit $2,500 to earn$ 500 in interest in5 years at4% annual interest.

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