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A person invests $1,000 at an interest rate of 5% per annum. How much interest w

Practice Questions

Q1
A person invests $1,000 at an interest rate of 5% per annum. How much interest will he earn in one year?
  1. $40
  2. $50
  3. $60
  4. $70

Questions & Step-by-Step Solutions

A person invests $1,000 at an interest rate of 5% per annum. How much interest will he earn in one year?
Correct Answer: 50
  • Step 1: Understand that the person is investing $1,000.
  • Step 2: Know that the interest rate is 5% per year.
  • Step 3: Convert the percentage to a decimal by dividing by 100. So, 5% becomes 0.05.
  • Step 4: Multiply the amount invested ($1,000) by the decimal interest rate (0.05).
  • Step 5: Calculate $1,000 * 0.05, which equals $50.
  • Step 6: Conclude that the interest earned in one year is $50.
  • Simple Interest Calculation – Understanding how to calculate simple interest using the formula: Interest = Principal × Rate × Time.
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