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.

Question

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:

\[ \boxed{80} \]