Final answer:
The total interest earned on a $25,000 investment over 7 years at a 7% interest rate is $12,250.
Step-by-step explanation:
The calculation provided correctly utilizes the simple interest formula, which is Interest = Principal × Rate × Time, to determine the interest earned on a $25,000 investment over 7 years at a 7% interest rate. In this case, the principal is $25,000, the annual interest rate is 7%, and the time period is 7 years.
The step-by-step calculation demonstrates the application of the formula:
\[ \text{Interest} = \$25,000 \times 0.07 \times 7 \]
Breaking it down further:
\[ \text{Interest} = \$25,000 \times 0.49 \]
Finally:
\[ \text{Interest} = \$12,250 \]
Therefore, the total interest earned on the $25,000 investment after 7 years is $12,250.
This calculation is based on the principle of simple interest, where the interest earned is directly proportional to the initial principal, the interest rate, and the time the money is invested. It's important to note that this formula assumes that the interest is not compounded over time, and the interest is calculated only on the initial principal amount.
This straightforward approach is suitable for scenarios where the interest is not reinvested or compounded periodically, making it a clear and effective method for determining the interest earned on an investment over a specified period.