Explanation“Simple” interest means that the interest is calculated based on the initial amount every time; the interest earned is not included in future calculations. Each year, the investment pays 12.5%, or \(\frac{1}{8}\), of the original investment as simple interest.

As a result, it will take exactly 8 years for the cumulative interest to add up to the original investment.

Be careful not to apply the compound interest formula here. If the 12.5% interest is in fact compounded annually, it will take only about 6 years for the investment to double in value.

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Sandy

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