If a $10,000 investment earns interest of $500 in one year, what is its rate of return?
Simple interest is the interest paid on the principal at a given rate of interest.
Answer: If a $10,000 investment earns an interest of $500 in one year, the rate of return is 5%.
Let us apply the simple interest formula to solve the problem.
The formula for calculating the simple interest is:
Simple Interest = (P × R × T)/100
Where, 'P' is the principal amount, 'r' is the rate of interest and 't' is the time
Substituting the values of principal (P) = 10000, time (t) = 1 year, Interest = 500, Rate = ?
500 = (10000 × r × 1)/100
500 × 100 = 10000 × r
r = 5
Therefore, the rate of interest = 5%