Question

Consider an account holding $30,000 (the "principal") and earning 8% interest each year. If the account holder withdraws the interest payment each year, how much is the annual interest payment that the principal amount would generate?

a) $2,400
b) $2,500
c) $2,600
d) $2,700

Answer 1

The annual interest payment generated by a $30,000 account at 8% interest rate is $2,400. This is calculated by multiplying the principal by the interest rate (0.08).

Step-by-step explanation:

To determine the annual interest payment generated by the principal amount in the account, we use the formula for simple interest:

Interest payment = Principal × Interest Rate

In this case, the principal is $30,000 and the annual interest rate is 8%. Thus, the annual interest payment would be:

$30,000 × 0.08 = $2,400

So, the correct answer is a) $2,400. This is the amount that would be withdrawn from the account every year if the account holder takes out only the interest payment.