Use the simple interest formula I=Prt, where I is the interest, P the principal, r the annual interest rate, and t the time in years.
$ 1440
Practice makes perfect
If we borrow money from a bank, we pay the bank interest for the use of their money. Similarly, if we open a savings account, the bank deposits extra money on this account as interest. To calculate the interest I, we use the simple interest formula.
I= P r t, where...
I& = Interest
P& = Principal
r& = Annual interest rate
t& = Time (in years)
We know that we deposit $1200 in a savings account with an annual interest rate of 5 %. We want to calculate the balance after 4 years. Keep in mind that 5 % is written in decimal form as 0.05.
P= 1200, r= 0.05, t= 4
To calculate the interest, we will substitute these values into the simple interest formula and evaluate the right-hand side.
After 4 years, the interest accrued is $240. The new balance of the account is the sum of the old balance and the accrued interest.
$ 1200+ $ 240=$ 1440
The balance of the account after 4 years is $ 1440.
