Question

practice page: percent applications & simple interest
directions: show all work. round answers to the nearest cent when necessary.

1. simple interest: a savings account earns 4% simple interest per year. if $500 is invested for 3 years, how much interest is earned?

Explanation:

Step1: Recall simple interest formula

The formula for simple interest is $I = P \times r \times t$, where $I$ is the interest, $P$ is the principal amount, $r$ is the annual interest rate (in decimal form), and $t$ is the time in years.

Step2: Convert rate to decimal

The annual interest rate is 4%, so in decimal form, $r = \frac{4}{100} = 0.04$.

Step3: Identify values of P and t

The principal amount $P = \$500$ and the time $t = 3$ years.

Step4: Calculate interest

Substitute the values into the formula: $I = 500 \times 0.04 \times 3$. First, calculate $500 \times 0.04 = 20$. Then, $20 \times 3 = 60$.

Answer:

The interest earned is $\$60$.