Question

1. You deposit £400 in to a bank account paying 5% simple interest per year.

How much interest would you have earned after 3 years?
(3 Marks)

Answer 1

The formula for simple interest is:

I = P * r * t

where:

I = interest earned

P = principal amount (initial deposit)

r = interest rate per year (as a decimal)

t = time period in years

Plugging in the values:

P = £400

r = 0.05

t = 3

I = £400 * 0.05 * 3 = £60

Therefore, you would have earned £60 in interest after 3 years.