How much simple interest will be paid on a $500 loan for 1 year if the annual interest rate is 6%?

How much simple interest will be paid on a $500 loan for 1 year if the annual interest rate is 6%?

• A. $30
• B. $25
• C. $40
• D. $60

Answer: (A)

Simple interest is found by multiplying the principal by the annual rate and the time in years: I = P × r × t. With P = 500, r = 0.06, t = 1, you get I = 500 × 0.06 × 1 = 30. So the interest paid after one year is $30 (since 6% of 500 equals 30).

Simple interest is found by multiplying the principal by the annual rate and the time in years: I = P × r × t. With P = 500, r = 0.06, t = 1, you get I = 500 × 0.06 × 1 = 30. So the interest paid after one year is $30 (since 6% of 500 equals 30).