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Difficulty: EasySimple Interest

A homeowner finances a new refrigerator using a $1,200\$1,200 store credit plan. The plan charges an annual simple interest rate of 5%5\%. If the homeowner pays off the balance in exactly 22 years without any prior payments, what is the total amount of interest paid, in dollars?

Answer: 120 dollars

Answer

120
The total interest is found by multiplying the principal amount by the annual interest rate and the time in years. Using the formula I=P×R×TI = P \times R \times T, the calculation is 1200×0.05×21200 \times 0.05 \times 2, which equals $120.

Step-by-Step Solution

1
Identify the given values for principal, rate, and time.
Principal P=1200P = 1200, Rate R=5%=0.05R = 5\% = 0.05, Time T=2T = 2 years.
These are the necessary variables for the simple interest formula.
2
Apply the simple interest formula.
I=1200×0.05×2I = 1200 \times 0.05 \times 2
The formula for simple interest is I=P×R×TI = P \times R \times T.
3
Calculate the final product.
I=120I = 120
Multiplying the values determines the total interest paid over the 22-year period.

Key Concept

Calculating simple interest using the formula I=P×R×TI = P \times R \times T
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Topics

Simple Interest

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