Question

Ethan put $1,250 into a savings account. The account pays 4.5% simple interest on an annual basis. If he does not add or withdraw money from the account, how much interest will he earn after 2 years? Round to the nearest cent.

Answer 1

Ethan will earn $112.50 in simple interest from a deposit of $1,250 at a 4.5% annual rate after 2 years.

Step-by-step explanation:

Calculating Simple Interest

Ethan deposited $1,250 into a savings account that pays an annual simple interest rate of 4.5%. To calculate the interest earned after 2 years, we use the simple interest formula:

Interest = Principal × Rate × Time

Here, the principal (P) is $1,250, the rate (R) is 4.5% (or 0.045 when converted to a decimal), and the time (T) is 2 years.

Let's calculate it step by step:

4. Convert the interest rate from a percentage to a decimal by dividing by 100: 4.5% ÷ 100 = 0.045.
8. Multiply the principal of $1,250 by the decimal rate: $1,250 × 0.045 = $56.25. This is the interest for one year.
12. Since the interest is for 2 years, we multiply the yearly interest by 2: $56.25 × 2 = $112.50.

Therefore, after 2 years, Ethan will have earned an interest of $112.50, rounded to the nearest cent.