GED Mathematical Reasoning TestQuantitative Problem Solving with Rational NumbersMedium
A client invests $5,000 in an account that earns simple interest at an annual rate of 3.5%. How much interest will the client earn in 4 years?
- A$1,750
- B$350
- C$175
- D$700
Show answer & explanationAnswer & explanation
Correct answer: D. $700
Simple interest is calculated using the formula I = P × R × T, where I is interest, P is principal, R is the annual interest rate (as a decimal), and T is the time in years. Multiply the principal ($5,000) by the annual rate (0.035) and the time (4 years) to get the total interest.
Why the other options are wrong
- A. This option is incorrect; it significantly overestimates the interest, possibly by misplacing the decimal or an incorrect multiplication factor.
- B. This option is incorrect; it represents the interest for two years, indicating an error in multiplying by the time period.
- C. This option is incorrect; it represents the interest for only one year, failing to account for the total time.
Simple Interest Calculation
Simple interest is a quick method of calculating the interest charge on a loan or investment. It is determined by multiplying the principal amount by the interest rate and the number of periods.
- Formula: I = P × R × T
- Rate (R) must be in decimal form.
- Time (T) must be in years.
Memory trick: Principal times Rate times Time, that's how simple interest climbs!