An account pays 6% annual simple interest. If $5,000 is deposited and left for 3 years, how much interest does the account earn?
- A$300
- B$600
- C$900
- D$1,500
- E$1,800
Simple interest: one multiplication, no compounding
Try it before you scroll. Two minutes on the clock, then commit to an answer.
Correct answer: C
Simple interest is I = P × r × t, with the rate as a decimal and t in years:
I = 5000 × 0.06 × 3 = 5000 × 0.18 = 900.
The account earns $900 in interest.
What separates this from the harder version of the same question: simple interest never adds interest to the principal, so every year earns the same $300. Compound interest would add the interest each year, giving 5000 × 1.06³ − 5000 ≈ $955.10, a different (and messier) number. Test writers rely on you blending the two, so underline the word “simple” or “compounded annually” before you compute.
Trap (A), $300, is one year’s interest. Trap (D), $1,500, uses 10% instead of 6%. Trap (E), $1,800, computes 6% of 5000 as 600 and then multiplies by 3.
Watch what the question asks for: “how much interest” is $900, but “what is the total value of the account” would be $5,900. Both phrasings appear on real exams.