If the interest rate is 4% per annum, how much interest will be earned on a prin

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Question: If the interest rate is 4% per annum, how much interest will be earned on a principal of $1,000 after one year? (2023)

Options:

Correct Answer: $40

Exam Year: 2023

Solution:

Interest = Principal * Rate = 1000 * 0.04 = $40.

If the interest rate is 4% per annum, how much interest will be earned on a principal of $1,000 after one year? (2023)

If the interest rate is 4% per annum, how much interest will be earned on a principal of $1,000 after one year? (2023)

Step 1: Identify the principal amount, which is $1,000.
Step 2: Identify the interest rate, which is 4% per annum.
Step 3: Convert the interest rate from a percentage to a decimal by dividing by 100. So, 4% becomes 0.04.
Step 4: Use the formula for calculating interest: Interest = Principal * Rate.
Step 5: Substitute the values into the formula: Interest = 1000 * 0.04.
Step 6: Calculate the result: 1000 * 0.04 = $40.
Step 7: Conclude that the interest earned after one year is $40.

Simple Interest Calculation – Understanding how to calculate simple interest using the formula: Interest = Principal * Rate.