Question

A savings account pays simple interest at 6% annually. If the account starts with $5000, how much will the account be worth after 25 years?

Answer 1

The savings account with an initial amount of $5000 at a simple interest rate of 6% annually will be worth $12500 after 25 years, which includes $7500 of interest earned over the period.

Step-by-step explanation:

To calculate the value of a savings account that pays simple interest at a rate of 6% annually, we use the simple interest formula, which is I = PRT, where I is the interest, P is the principal amount ($5000), R is the rate of interest per year (0.06), and T is the time in years (25). The total interest after 25 years is found by multiplying these values.

I = PRT = $5000 × 0.06 × 25

Then we add this interest to the original principal to find the total amount in the account.

The total interest earned after 25 years will be:

I = $5000 × 0.06 × 25 = $7500

Therefore, the total amount in the account after 25 years will be:

Total Amount = Principal + Interest = $5000 + $7500 = $12500