If you’re wondering about the interest on an investment of $10,000 at a 5% annual rate, it’s helpful to break down the calculation. First, you calculate the interest for one year by multiplying the principal amount ($10,000) by the annual interest rate (5%). This gives you $10,000 multiplied by 0.05, which equals $500. This $500 represents the interest earned in the first year.
Next, to find out the total interest earned over the course of the loan, you need to consider the duration. For instance, if this investment is held for 5 years, you would multiply the annual interest ($500) by the number of years, resulting in $500 × 5 = $2,500. Therefore, after 5 years at a 5% annual interest rate, an initial investment of $10,000 would yield $2,500 in interest.
Understanding how interest accrues on an investment or loan is crucial for financial planning. By knowing the basic formula for interest calculation, you can estimate the growth of your money over time. In this example, the $2,500 interest on a $10,000 investment at 5% annual interest demonstrates the potential returns from putting money into an interest-bearing account or investment.
(Response: $2,500)