Juan deposited $200 in a savings account earning 3% simple interest over 2 years. What was the total amount of interest earned after 2 years?
Answer : $12
Explanation : There are three elements that characterize a savings account: initial capital (Principal), interest rate (Rate) and deposit time (Time). The interest rate is usually annual and the time will be expressed in years also.
The interest rate can be simple or compound. The simple interest only applies the interest rate on the principal at the end of each payment period, but the compound interest would be more profitable, since the interest produced in each calculation period is accumulated to the principal before calculating the interests of the following calculation period, thus interests also produce interest.
Here we apply the Simple Interest Formula
produced Interest = P x R x T
P = Principal, R = interest rate (annual), T = years
We apply the data of our case
Produced Interest = P x R x T = $200 x 3/100 x 2 = $200 x 0.03 x 2 = $12
Answer : $12 (total amount of interest earned after 2 years)
