Question

Which of the following best illustrates simple interest?

a. Ann has a 1,000 savings account that will pay her 40 of interest each year for five years
b. Rita has a savings account that paid her 40, 41, 42 and 43 in interest over the past four years on a 1,000 investment
c. Ivan invested 1,000 and receives an increasing amount of interest each year even though the interest rate is constant
d. Alex invested 1,000 and has received 35, 42, 46, and 49 in annual earnings over the past four years?

Answer 1

The best illustration of simple interest is Ann's account that pays a consistent $40 yearly on a $1,000 principal. Simple interest is calculated without compounding, based on the initial amount, at a set rate, over a specified period.

Step-by-step explanation:

The question "Which of the following best illustrates simple interest?" can be answered by identifying the scenario where interest is earned at a fixed rate on the principal amount only.

The most accurate representation of simple interest among the options given is: Ann has a 1,000 savings account that will pay her $40 of interest each year for five years. This is because simple interest is calculated by multiplying the principal amount, the rate, and the time (I = P × r × t). Since Ann receives a constant amount each year, without any compounding, it indicates the interest is simple.

For example, if you have a $5,000 loan at a simple interest rate of 6% for three years, the total interest is calculated as $5,000 × 0.06 × 3, which equals $900. Similarly, to determine the interest rate charged on a loan if you receive $500 in simple interest from a $10,000 loan over five years, you use the formula I = P × r × t and solve for r, leading to an interest rate of 1%.