Question

Tyler has $1000 that he wants to put in a savings account. He wants to save the money for 6 years. After 6 years he plans to take the money out and spend it on college. He looks at two different banks, and they offer him different interest options.

Bank A offers Tyler 4% simple interest. How much would Tyler’s investment be worth after 6 years in this account? Show your calculations below.

Answer 1

Tyler's $1,000 investment will be worth $1,240 after 6 years, invested at 4% interest rate.

The problem gives the following relevant data:

Principal = $1000
Interest rate = 4% simple interest
Term or time period = 6 years

Since simple interest is given, we need to use the simple interest formula;

I = P x R x T

where: P is the principal, R is the interest rate, and T is the time the money will be invested.

I = $1000 x 4% x 6yrs
I = $1000 x 0.04 x 6
I = 40 x 6
I = 240  ==> Interest earned after 6 years is $240.

Total Investment = Principal + Interest
T.I. = $1,000 + $240
T.I. = $1,240  ==> the value of Tyler's investment after 6 years.