If $11,000.00 is invested at 15% annual simple interest, how long does it take to be worth $52,250.00.

Question

If $11,000.00 is invested at 15% annual simple interest, how long does it take to be worth $52,250.00.

It will take ________ years (round to the nearest whole).

Answer 1

Simple Interest = interest only on the principle, no matter the year. Therefore annual interest is consistent assuming no change in principle.

Step 1: Find the annual interest. 11,000 * 0.15 = 1,650

Step 2: Assuming the ending balance of 52,250 includes the original principle, we can find the interest-specific portion by subtracting 11,000 from 52,250 to get 41,250.

Step 3: Divide the total interest by the amount of interest paid annually do get the amount of years. 41,250 / 1,650 gives 25 years even.

Note: Simple interest is not as commonly used in real world scenarios in comparison to compounding interest or amortized loans. It is a much simpler computation compared to compounding interest as the name conveniently suggests. Knowing the difference between the two from front to back will not only help you ace exams but also have a keen eye for potential investments or loans you may decide to consider (especially credit card loans), all of which are decisions that have the potential to save you $$$ or help you earn more $$$.