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| Math Central | Quandaries & Queries |
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Question from Tiffany, a parent: cindy puts 5,025 in a bank account that earns a simple interest rate of 8%. How much money will be in the account at the end of 6 years? |
Hi Tiffany,
Simple interest of 8% means that the amount in the account is increased by 8% of the principal each year. The interest only applies to the principal, not the interest. Thus for example if she had put $4,000 in the account then she would earn $4,000 × 0.08 = $320.00 interest each year. Hence at the end of the 6 years she would have the original $4,000 plus the interest of $320 per year for a total of
$4,000 + 6 × $320 = $5,920
Stephen and Penny
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