Question

Suppose you invest $10,000 in a savings account paying 2% simple annual interest. Calculate the amount of interest you earn after five years.

Answer 1

We have that the formula for the simple interest is the following:

$A=P(1+rt)$

Where A is the total amount, P is the principal amount, r is the interest and t is the periods of time

In this case, we have the following:

$\begin{gathered} P=10,000 \\ r=2\%=0.02 \\ t=5 \\ \Rightarrow A=10000(1+0.2\cdot5)=11000 \\ A=\ 11,000 \end{gathered}$

therefore, the total amount at the end of 5 years is $11,000, so this means that you earn $1000 of interest after five years