A principal of $100 earns 5% simple interest for 2 years. What is the amount after 2 years?

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Multiple Choice

A principal of $100 earns 5% simple interest for 2 years. What is the amount after 2 years?

Explanation:
Simple interest grows the amount in a linear way because the extra money each year is earned only on the original principal. Here, the principal is 100, the annual rate is 5% (0.05), and the time is 2 years. The interest earned over the two years is 100 × 0.05 × 2 = 10. So the amount after two years is 100 + 10 = 110. Using the formula A = P(1 + rt) gives 100(1 + 0.05×2) = 110. The other numbers would come from thinking it’s only one year of interest (105), no interest (100), or some form of compounding or higher rate (120).

Simple interest grows the amount in a linear way because the extra money each year is earned only on the original principal. Here, the principal is 100, the annual rate is 5% (0.05), and the time is 2 years. The interest earned over the two years is 100 × 0.05 × 2 = 10. So the amount after two years is 100 + 10 = 110. Using the formula A = P(1 + rt) gives 100(1 + 0.05×2) = 110. The other numbers would come from thinking it’s only one year of interest (105), no interest (100), or some form of compounding or higher rate (120).

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