Question

Mr. Thompson plans to invest $7,500 in a savings account that earns 2.75% simple annual interest. If he makes no other deposits or withdrawals, how much money will Mr. Thompson's account be worth after 10 years.

Answer 1

Answer:

Mr. Thompson's account be worth $9,562.50 after 10 years

Step-by-step explanation:

Simple Interest

Interest is calculated on the original principal only of a loan or on the balance of an account.

Unlike compound interest where the interest earned in the compounding periods is added to the new principal, simple interest only considers the principal to calculate the interest.

The interest earned is calculated as follows:

I=P.r.t

Where:

I = Interest

P = initial principal balance

r = interest rate

t = time

Mr. Thompson plans to invest P=7,500 in a savings account that earns r=2.75% = 0.0275.

The interest earned in t=10 years is calculated now:

I=7,500*0.0275*10

I=2,062.50

Now we add the interest to the principal:

A = $7,500 + $2,062.50

A = $9,562.50

Mr. Thompson's account be worth $9,562.50 after 10 years