Question

If you deposit $1000 in a bank account paying 1.2% annual interest, how much interest will the deposits earn in 5 years if the bank computes the interest using simple interest?

Answer 1

$60

Explanation:

You are going to want to use the simple interest formula for this. The one below is modified for solving the interest earned.

`I = Prt`

P = initial balance

r = annual interest rate

t = time

First, change 1.2% into its decimal form:

1.2% ->
`(1.2)/(100)` -> 0.012

Next, plug the values into the equation:

`I=1000(0.012)(5)`

`I=60`

The interest earned is $60.