Question in description

Question

The simple interest, I, on an investment is directly proportional to the principal amount of the investment, P. By investing $2,500 in a certain bond issue, you obtained an interest payment of $187.50 at the end of the year. Determine how much interest would you have earned if your investment was $10,000. Be sure to define your variables, find your constant variable, construct your variation equation, and then solve.

Answer 1

Let's use the equation I = Prt with the following variables:

I: interest

P: principle

r: rate

t: time (in years)

So, if $2500 gives $187.50 in interest after 1 year, we can plug the following values into our equation and solve for r:

187.50 = 2500(r)(1)

187.50 = 2500r

r = 187.50/2500 = 0.075 or 7.5%

Now we can use this rate, the same value for t, and a principle of $10000 to calculate the new interest:

I = 10000(.075)(1) = $750