Question
Interest and TVM
Melissa notes that her savings account eamed
Melissa notes that her savings account eamed
Ask by Gibbs Simpson. in the United States
Mar 14,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
Melissa’s principal was $1,336.
Solution
We use the simple interest formula:
where:
-
is the interest earned, -
is the principal, -
is the annual interest rate, and -
is the time in years.
Given:
Step 1: Solve for
Step 2: Substitute the values:
Step 3: Calculate the denominator:
Step 4: Divide to find
Thus, the principal amount is
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Simplify this solution The Deep Dive
To find the principal, we can use the formula for simple interest:
Plugging in the values:
So, her principal amount was approximately
When it comes to understanding interest and time value of money (TVM), it’s key to grasp how money can grow over time, thanks to interest. For example, if Melissa deposits that principal amount in the bank with consistent contributions, she can watch her savings blossom thanks to the magic of compounding! Understanding these concepts can also help in making smarter investments for the future.
A common mistake people make is neglecting the fact that not all interest is created equal. For instance, some accounts offer compound interest, which can give bigger returns over time compared to simple interest. Always check if the interest is compounded annually, semi-annually, quarterly, or monthly, as this will significantly affect your savings potential! So, be sure to read the fine print before you deposit.
