Question

Find the simple interest earned in a savings account that pays 5% interest if $500 is deposited for 4 years. A. $100, B. $1000, C. $600, D. $500

Answer 1

To calculate simple interest, you first need to multiply the original amount by the percentage of the money which is going to be added.

In this situation, 500 x 0.05 is the interest which will be added each year.
Therefore, $25 will be added each year. Since it is over 4 years, it is (25*4).
So the account will have earned $100 of simple interest.

Although the account will contain $600, it will have EARNED $100 of interest since it started with $500 already.

Answer - A $100 of simple interest will be earned.