Question

To be able to go on a trip to South America, Nicole decides to save for 5 years. She opens a savings account with $400. The account pays simple interest at an annual rate of 5%. She doesn't make any more deposits. Answer the following questions. If necessary, refer to the list of financial formulas.

a) How much total interest will Niccie earn? $___.
b) What will the total amount in the account be (including interest)? $___.

Answer 1

Nicole will earn $100 in total simple interest over 5 years, and the total amount in the account after this period will be $500, including interest.

Step-by-step explanation:

Calculating Simple Interest Earned and Total Amount

Nicole has decided to save $400 in a savings account that pays simple interest at an annual rate of 5% for 5 years. To calculate the total interest earned over this period, we use the formula for calculating simple interest:

I = P × r × t

Where,

• I is the interest
• P is the principal amount ($400)
• r is the annual interest rate (5% or 0.05)
• t is the time in years (5)

Plugging the values into the formula gives us:

I = $400 × 0.05 × 5 = $100

Nicole will earn a total interest of $100 over 5 years.

To find the total amount in the account, we add the interest to the initial principal:

A = P + I

A = $400 + $100 = $500

The total amount in the account after 5 years, including interest, will be $500.