Simple Interest

Question

Rita invested $10,000.00 in a mutual fund that pays interest on a daily basis. The balance in her account at the end of the 8 months (245 days) was $10,475.25. Find the effective rate ar which Rita's account earned interest over this period. Assume a 365-day year.

For this purpose only (not for your work or the exam), round to the nearest integer. Do not put the percent sign.

Answer 1

So the effective rate is the annual interest rate. OK.

 

Simple interest means that unless Rita changes the principal amount somewhere along the way, the dollar amount of the interest is the same each day.

 

Now, over 245 days the total interest was $475.25. So each day the interest earned was about $1.94. Over 365 days, the total interest would be about $708.03. That means the interest for the year is about 7%. And I'm not taking the exam, so I will use the percent sign. LOL