A simple interest loan of $2,000 at 5% annual for 3 years yields how much interest?

• A. $150
• B. $600
• C. $1,000
• D. $300

Answer: (D)

This tests understanding of simple interest calculation, where interest is earned only on the original principal. Use I = P × r × t. With principal 2,000, annual rate 5% (0.05), and time 3 years: 2,000 × 0.05 = 100, then 100 × 3 = 300. So the interest over the three-year period is 300 dollars. Since this is simple interest, there’s no interest-on-interest; a compounded scenario would yield a different (larger) amount.