SOLUTION: James plans to invest his $2,755.73 that he has saved in a money market account so that it will grow to $3500.00 in three years and five months so that he can purchase his first ca

Algebra ->  Finance -> SOLUTION: James plans to invest his $2,755.73 that he has saved in a money market account so that it will grow to $3500.00 in three years and five months so that he can purchase his first ca      Log On


   

Question 1152748: James plans to invest his $2,755.73 that he has saved in a money market account so that it will grow to $3500.00 in three years and five months so that he can purchase his first car. At what simple interest rate would the money market account have to yield in order for James to achieve his goal? Round to the nearest tenth of a percent,
Thank you in advance
SYL
Answer by VFBundy(438) About Me  (Show Source):
You can put this solution on YOUR website!
Simple interest is: INTEREST = PRINCIPAL * RATE * TIME

We know the time is: 3 years and 5 months. 5 months is 5/12 of a year. 5/12 is 0.4167. So the total time is 3.4167 years.

James needs to account to grow to $3500.00 Since his principal is $2755.73, that means the total interest is: $3500.00 - $2755.73...or, $744.27.

Plug in the numbers that we have into the formula:

INTEREST = PRINCIPAL * RATE * TIME

744.27 = 2755.73 * RATE(r) * 3.4167

Now, simplify and solve for r:

744.27 = 9415.50r

r = 0.079

The interest rate is 7.9%.