Question

Fred invested $25,000 at 4% simple interest. How much interest will he earn each year?

Step 1

**Simple interest:**

Simple interest is an easy method of calculating the interest charge on a loan. Simple interest will not give an interest on the interest. The interest payments will be fixed to the simple interest amount per year no matter how many years the initial sum of money stays in the bank or with the barrower.

The general formula for simple interest is,

*I *= *P* * *r ** *t*

Where:

*P *is the principle amount,

*r *is the interest rate,

*t *is the time period.

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