Question

Sarah invested $125. She earned a simple interest of 2.5% on the

investment. What was the amount of interest Sarah received after 2 years?

Answer 1

I(Interest) = $6.25

Explanation:

The formula for Simple Interest

A = P(1 + rt)

Where

A = Amount after t years

P = Principal, initial amount invested = $125

r = Interest rate = 2.5%

t = time in years = 2 years

Step I

We the interest rate to a decimal

r = R/100 = 2.5%/100 = 0.025 per year.

Step 2

A = 125(1 + (0.025 × 2))

A = $131.25

The Amount received after 2 years = $131.25

The amount of interest Sarah received after 2 years

I = A - P

I = $131.25 - $125

I = $6.25