What is the simple interest earned on an amount of \$1,000 at an annual interest rate of 4% for 2 years?

• A. \$400
• B. \$40
• C. \$80
• D. \$20

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the formula for calculating simple interest, which is: \( I = P \times R \times T \), where \( I \) is the interest, \( P \) is the principal amount, \( R \) is the annual interest rate (expressed as a decimal), and \( T \) is the time in years.
2. Step 2: Identify the values given in the problem: \( P = 1000 \), \( R = 4\% \) (convert to decimal as \( 0.04 \)), and \( T = 2 \) years.
3. Step 3: Substitute the values into the formula: \( I = 1000 \times 0.04 \times 2 \).
4. Step 4: Perform the multiplication step-by-step: First, multiply \( 1000 \times 0.04 \), then multiply the result by \( 2 \).
5. Step 5: The result of the calculation will give you the simple interest earned over the 2-year period.