Suppose you earn 3% on a $1,200 deposit for 5 years. How is the interest affected if the rate or the time is increased. Explain.
To calculate the interest earned on a deposit, we multiply the initial deposit amount by the interest rate and the time period. In this case, the initial deposit is $1,200, the interest rate is 3%, and the time period is 5 years.
To calculate the interest earned, we can use the formula: I = P * r * t, where I is the interest, P is the principal (initial deposit amount), r is the interest rate, and t is the time period.
So in this case: I = $1,200 * 0.03 * 5 = $180.
Now, let's explore how the interest is affected if either the interest rate or the time period is increased:
1. Increasing the interest rate: If the interest rate increases, the interest earned will also increase. For example, if the interest rate is increased to 5%, the calculation would be: I = $1,200 * 0.05 * 5 = $300. As you can see, the interest earned is higher compared to the previous scenario because of the higher interest rate.
2. Increasing the time period: If the time period is increased, the interest earned will also increase. For example, if the time period is increased to 10 years, the calculation would be: I = $1,200 * 0.03 * 10 = $360. Here again, the interest earned is higher compared to the initial scenario because of the longer time period.
Therefore, increasing either the interest rate or the time period will result in higher interest earned on the deposit.