Compute the amount of interest earned in the following simple interest problem. A deposit of $7,000 at 6.5% for 120 days.

Answer 1

Calculate the interest rate per day and multiply it by the number of days and then by the principal.

You are give a rate of 6.5% It doesn't say so, but rates typically are annual rates or rates per year. That is 0.065/1 year or 0.065/365 days. Dividing, we get a daily rate of 0.0001780822. Multiplying that number by 120 days gives 0.02136986. Multiplying that by the $7,000 gives $149.59.

Another way to do it is the multiply 7000 by 6.5% (actually multiply by the decimal 0.065) to get $455. That would be the amount of interest you would get in 1 year. Now, realize that you wouldn't get interest for the whole year, only 120 days. That is a ratio of 120 days/365 days or 120/365. multiply the 455 by the ratio to get $149.59