Question

You decide to purchase a bond for $500. It pays 5% simple interest per year and matures in 5 years. How much interest will you earn once the bond matures? Round your answer to the nearest dollar.

Do NOT round until you have calculated your final answer.

Answer 1

Explanation:

We express the interest rate r in decimal form, so we have r=5%=5100=0.05. The principal is P=500 and the time in years is t=5. So, the interest is I=Prt=(500)(0.05)(5)=$125. The interest earned is $125.

Answer 2

$625

Explanation:

You start with $500

The interest per year is 5% or 500 x 0.05 = $25

If it matures 5 years and each year has an increase of $25 then

Year 1 - $525

Year 2 - $550

Year 3 - $575

Year 4 - $600

Year 5 - $625