Invest $1,000 at 5% simple interest for 3 years. What is the interest earned?

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Multiple Choice

Invest $1,000 at 5% simple interest for 3 years. What is the interest earned?

Explanation:
Simple interest grows linearly because you earn interest only on the initial principal. The formula is I = P × r × t, with P as the principal, r the annual rate (as a decimal), and t the time in years. Here, P = 1000, r = 0.05, t = 3. The yearly interest is 1000 × 0.05 = 50, and over three years that becomes 50 × 3 = 150. So the interest earned is 150 dollars. The total after three years would be 1000 + 150 = 1150. (If it were compound interest, the amount would be different because interest would earn interest.)

Simple interest grows linearly because you earn interest only on the initial principal. The formula is I = P × r × t, with P as the principal, r the annual rate (as a decimal), and t the time in years. Here, P = 1000, r = 0.05, t = 3. The yearly interest is 1000 × 0.05 = 50, and over three years that becomes 50 × 3 = 150. So the interest earned is 150 dollars. The total after three years would be 1000 + 150 = 1150. (If it were compound interest, the amount would be different because interest would earn interest.)

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