Ali invests £130 in an account that pays r% interest

Finance Aug 12, 2020

Ali invests £130 in an account that pays r% interest. After the first year he receives £5 interest. What is the value of r, the rate of interest? out of Select one: O a. 3.84% O b. 4.2% O c.3.2% d. 3%

Expert Solution

The correct answer is 3.84%

Explanation: Interest rate is the rate that the investment generates over the period of time.

Since, the time is 1 year the interest amount will be same for Compound interest and simple interest.

Interest = Principal * Interest Rate * Time

Interest rate = r

5 = 130 * r * 1

r = 5/130

r = 0.0384

So, In percentage, Rate of interest = 0.0384 * 100

= 3.84%

So, The correct option is 3.84%

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