A 4-month Guaranteed Investment Certificate with a face value of $55,000 will have a maturity value of $56,100. What simple annual interest rate is it carrying?
A) 6.00%
B) 10.20%
C) 2.00%
D) 8.00%
E) 20.00%

Question

Quizplus · Accepted Answer

The simple annual interest rate can be calculated using the formula for simple interest: Interest = Principal × Rate × Time. Here, the interest earned is $56,100 - $55,000 = $1,100, the principal is $55,000, and the time is 4 months (or 4/12 of a year). Rearranging the formula to solve for the rate gives Rate = Interest / (Principal × Time). Plugging in the numbers: Rate = $1,100 / ($55,000 × 4/12) = 0.06, or 6%.

A 4-Month Guaranteed Investment Certificate with a Face Value of $55,000