Question

The simple interest formula is I = Prt, where I represents simple interest on an amount, P, for t years at a rate of r, where r is expressed as a decimal.

What is the amount of money, P, that will generate $40 in interest at a 10% interest rate over 5 years?

$60
$80
$90
$100

Answer 1

To find the principal amount \( P \), we can rearrange the simple interest formula \( I = Prt \) to solve for \( P \):

\[
P = \frac{I}{rt}
\]

We are given:
- \( I = 40 \) (the interest)
- \( r = 0.10 \) (10% as a decimal)
- \( t = 5 \) (years)

Now, we will substitute these values into the formula:

\[
P = \frac{40}{0.10 \times 5}
\]

Calculating the denominator:

\[
0.10 \times 5 = 0.50
\]

Now substitute this back into the formula for \( P \):

\[
P = \frac{40}{0.50} = 80
\]

Thus, the amount of money \( P \) that will generate $40 in interest at a 10% interest rate over 5 years is $80.

The correct answer is:

\[
\boxed{80}
\]