Question

A bank deposit paying simple interest at the rate of 8% per year grew to a sum of $1200 in 10 months. Find the principal. (Round your answer to the nearest cent.)

Answer 1

Simple interest is paid when the money is paid back (or in this case, withdrawn). That is not how banks compute interest either owed or paid, but since they want you to do it that way, here is what you do:

If the initial principal is X,

X*(1 + 0.08*(10/12)) = 1200.00

X*(1.06666667) = 1200

X = 1125.00