Modeling Investments — Quiz

Question 6 • Advanced Financial Algebra

Which scenario can be modeled using the formula I=P×r×t ?

Answer

A 3 dollars comma 000 investment where the interest earned is added to the balance at the end of each year.

A 1 dollars comma 000 deposit that earns interest on both the principal and the accumulated interest monthly.

A 2 dollars comma 000 deposited into a savings account where the annual interest is calculated on the original deposit amount.

Monthly contributions of 100 dollars into an account that adds interest each month.

Explanation

The formula I = P × r × t calculates simple interest: interest is based only on the original principal P, at rate r, for time t. In choice C, the annual interest is calculated on the original $2,000 deposit, so this formula applies. Choices A and B describe compound interest, and D includes regular monthly contributions, which the formula does not account for.

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