Question 159026: Your parents purchased a house for $120,000. After 22 years the house had doubled in value. What was the simple interest rate that could generate this return on their investment?
Answer by gonzo(654)   (Show Source):
You can put this solution on YOUR website! simple interest rate is based on the original value.
there is no compounding of interest involved.
for this problem, the original price was $120,000
in 22 years that doubled to become $240,000
interest each year would be calculated as ($240,000 - $120,000) / 22 which equals which equals 5454.54545454... interest per year.
percent interest per year would then be 5454.54545454..... / original purchase price of $120,000 * 100%.
this becomes (5454.545454 / $120,000) * 100% = 4.5454545...% per year which becomes 4.55% per year rounded to the nearest 100 hundredth of a %.
to find the total profit using simple interest, you would take that interest rate and multiply it by the original investment and multiply that by 22 which should get you back to $120,000.
algebraically that would be ($120,000 * 4.545454% / 100%) * 22 = $120,000.
calculating out yields $120,000 = $120,000 proving the formula is correct.
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