find the principal

Question

Marleen is investing in a money market account. Find the principal of Marleen's investment if the interest earned is $2860.00 after 4 years at a rate of 5%

Answer 1

Hi, La,

 

Principal/interest problems come in a few different varieties, depending on whether it is simple interest or compound interest (meaning that the interest earned in one period contributes to the amount of interest earned in following periods), and if it is compound interest, it also matters how often it is compounded.

 

Since none of those details that we would need for compound interest are given, I'll assume that the question is referring to simple interest. In this case, the amount of interest earned each period (per year, in this case) only depends on the amount of principal initially invested, so each period will add the same amount of interest.

 

For an annual interest rate of 5%, that means that interest added each year is 5% of the principal.

 

Since we know that $2860.00 was earned over 4 years, we can calculate the amount earned each year would be:

 

    $2860.00/4 = $715

 

$715 must be 5% of the initial principal invested, so we can use that to set up a proportion:

 

    $715    =       5  

       x               100

 

We can solve for x by cross multiplying:

 

    $715*100 = 5*x

 

    x = $715*100/5

 

    x = $14300.00

 

I hope this helps! And GO NAVY! BEAT AIR FORCE!

 

Andy