Question

Beau's grandmother started depositing $500 in a savings account each
year in his birthday. The account pays 2.5% simple interest. How much
interest will the account earn after 3 years?
O $75
O $50
O $40

Answer 1

Given:

Beau's grandmother started depositing $500 in a savings account each  year in his birthday

Rate of simple interest = 2.5%

Time = 3 years

To find:

The interest.

Solution:

Formula for simple interest:

$I=\dfrac{P\times r\times t}{100}$

where, P is principal, r is rate of interest and t is time in years.

Interest for first year is

$I_1=\dfrac{500\times 2.5\times 1}{100}$

$I_1=12.5$

New principal = $500+500=1000$

Interest for second year is

$I_2=\dfrac{1000\times 2.5\times 1}{100}=12.5$

$I_2=25$

New principal = $1000+500=1500$

Interest for third year is

$I_3=\dfrac{1500\times 2.5\times 1}{100}=12.5$

$I_3=37.5$

Total interest for 3 years is

$I=I_1+I_2+I_3$

$I=12.5+25+37.5$

$I=75$

So, interest after 3 years is $75.

Therefore, the correct options A.