The annual interest rate is 3.5%.
Solution:
Given Interest (I) = $26.25
Principal (P) = $500
Time (t) = 18 months
Rate of interest (r) = ?
Time must be in years to find the rate per annum.
1 year = 12 months
Divide the time by 12.
Time (t) = [tex]\frac{18}{12}=\frac{3}{2}[/tex] years
Now, find the rate of interest using simple interest formula.
Simple interest formula:
[tex]$I=\frac{Prt}{100}[/tex]
[tex]$26.25=\frac{500\times r\times \frac{3}{2} }{100}[/tex]
[tex]$26.25\times 100 =500\times r\times \frac{3}{2}[/tex]
[tex]$2625 =250\times r\times 3[/tex]
[tex]$2625 =750\times r[/tex]
[tex]$\Rightarrow r=\frac{2625}{750}[/tex]
⇒ r = 3.5%
Hence the annual interest rate is 3.5%.
