Simple Interest Calculation Question

Simple Interest Formula

Simple interest is calculated using the formula: Principal x Rate x Time. This formula helps determine the interest earned on an initial amount of money deposited or invested, typically in a savings account.

Application to Savings Accounts

When determining the balance of a savings account after a certain period of time, we apply the simple interest formula. The initial deposit, interest rate, and duration are key factors in calculating the final balance. By multiplying the initial deposit by the interest rate and the number of years, we can calculate the interest earned on the deposit. Adding this interest to the initial deposit gives us the total balance of the account.

For example, if Darryl deposits $1,500 into a savings account with a simple interest rate of 2.7% for 10 years, we can calculate his balance after 10 years as follows:

Interest earned: $1,500 x 0.027 x 10 = $405

Balance after 10 years: $1,500 + $405 = $1,905

Similarly, for Lori's deposit of $1,400 with a simple interest rate of 3.8% for 10 years:

Interest earned: $1,400 x 0.038 x 10 = $532

Balance after 10 years: $1,400 + $532 = $1,932

Therefore, the simple interest formula is essential in determining the final balance of savings accounts after a specific period of time, considering the initial deposit, interest rate, and duration.