Question

Keith deposits $6000 into an account that pays simple interest at an annual rate of 4%. He does not make anymore deposits. He makes no withdrawals until the end of 5 years when he withdrawals all the money.

How much total interest will Keith earn?

Answer 1

At the end of 5 years, Keith will earn $1,200 in total interest.

Step-by-step explanation:

Keith's interest earnings can be calculated using the simple interest formula:
`\( I = P * r * t \), where \( I \) is the interest, \( P \)` is the principal amount,
`\( r \)` is the annual interest rate, and
`\( t \)` is the time in years.

In this case, Keith deposited $6,000
`(\( P = $6000 \))`, the annual interest rate is 4% (\( r = 0.04 \)), and the time is 5 years
`(\( t = 5 \))`. Plugging these values into the formula:

`\[ I = $6000 * 0.04 * 5 = $1200 \]`

Therefore, Keith will earn $1,200 in total interest over the 5-year period.

This result aligns with the concept of simple interest, where the interest is calculated solely on the initial principal amount. Unlike compound interest, there are no additional earnings on previously earned interest. In this scenario, Keith's interest accumulates at a constant rate of 4% per year, resulting in a straightforward calculation of $1,200 in total interest earned by the end of the 5-year period.