Interest: Simple Interest

Samantha purchased a five-year municipal bond that pays simple interest for $600. After the bond matured five years later, she had received a total of $720 in principal plus interest payments. What is the interest rate of Samantha's bond?

Incorrect. [[Snippet]] This answer choice presents % interest earned over the entire period of five years. However, what did the question ask?

Incorrect. [[Snippet]]

Incorrect. [[Snippet]]

Incorrect. [[Snippet]]

__Alternative Method__: We know that $120 is 20% of $600. Since the interest earned is 20% over 5 years, the annual interest is >$$\displaystyle \text{Annual interest rate} = \frac{20\%}{5}=4\%$$.

Correct. [[Snippet]] Given that the total amount Samantha received after the bond matured is $720, she earned $120 ($$\$720 - \$600 = \$120$$) in interest over five years. Plug that information into the simple interest formula >$$\text{Simple interest} = \text{Principal} \times \text{Interest rate} \times \text{Time}$$ > $$\$120 = \$600 \times r \times 5$$ > $$120 = 3{,}000 r $$ > $$\displaystyle \frac{120}{3{,}000} = r $$ > $$\displaystyle \frac{4}{100} = r $$ > $$ 4\% = r$$

4%

5%

10%

12%

20%

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