Multiple choice

An investment of \$5,000 grows to \$6,250 in five years. What is the annual rate of return on the investment, assuming simple interest?

  1. 4%

  2. 5%

  3. 6%

  4. 7%

  5. 8%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Simple interest = 6250 - 5000 = 1250. Principal = 5000, Time = 5 years. SI = P*R*T/100 => 1250 = 5000 * R * 5 / 100 => 1250 = 250 * R => R = 5%.

AI explanation

Using the simple interest formula I = (P * R * T) / 100, the total interest earned is 6250 minus 5000 which equals 1250. Setting up the equation gives 1250 = (5000 * R * 5) / 100, which simplifies to 1250 = 250 * R. Solving for R gives R = 5, so the annual rate of return is 5%.

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