Simple Interest


Problem: An account has a beginning balance of $1200 that earns 2.5% simple interest.(a) How much interest will be earned after 6 years?(b) What is the future value of the investment in 6 years?

NOTE: The formulas and the explanation of each letter used in the formula is found below.

Solution to part (a):
To find the Interest after 6 years, we will use the formula I = Prt. We have the beginning balance is P = 1200, r, the interest rate is 2.5%, or written as a decimal number that is 0.025, and the time t = 6. Thus we have:

I = Prt = 1200 x 0.025 x 6

The required keypresses and result are as follows:

The investment earns $180.00 in 6 years.

Solution to part (b):
To find the future amount of the investment after six year we have a choice of two different formulas. We will use the one step forumula A = P(1 + rt). Since we have P = 1200, r = 0.025 and t = 6, we get:

A = P(1 + rt)
A = 1200(1 + 0.025 x 6)

The required keypresses and result are as follows:

The future value is $1380.00

 


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