An investor puts $4,500 into an account paying 1.9% annual interest and leaves it for 8 months. How much simple interest is earned?
A$85.50
B$684.00
C$47.50
D$57.00
Answer & Solution
Correct answer: D. $57.00
1. In I = Prt the rate is an annual rate, so time must be in years.
2. Convert 8 months to years: 8/12 of a year, which is 2/3.
3. Substitute: I = 4,500 x 0.019 x (8/12).
4. Multiply the first two factors: 4,500 x 0.019 = 85.50 dollars per year.
5. Take 2/3 of that: 85.50 x 2/3 = 57.00.
6. So the interest earned is $57.00.
7. $85.50 is the trap of forgetting to convert months to years, and $684.00 treats the 8 months as 8 full years.
8. $47.50 comes from converting to 8/12 but slipping to 5/9 in the fraction arithmetic.
_Source: OpenStax Prealgebra (CC BY 4.0), Ch 6 "Percents", section 6.4 Solve Simple Interest Applications_
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