If you deposit $500 in a CD account paying 5% interest annually: $500 is the principal and the annual interest rate is 5%. Suppose the banker wants you to keep your money into their bank and not go to their competitors: The bank offers you: If you deposit that money into a CD and keep the money for one year, you will get extra $50. You are curious so you ask: What would be the interest rate in this case?

p = $500

r = 5% for 12 months

Offered: interest earned: $50

t = 12 months/ 12 months

Question: What is the new interest rate annually?