# Calculation Of Simple Interest Quiz

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Questions: 10 | Attempts: 418

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Simple interest is the part of math and the formula is A = P(1 + rt). Take this quiz and solve all these questions related to simple interest

• 1.

### Banks offer the interest as an "incentive" to customers who open accounts. What does "incentive" mean?

• A.

Encouragement

• B.

Punishment

• C.

Trick

• D.

None of the above

A. Encouragement
Explanation
The word "incentive" refers to something that is offered to encourage or motivate someone to do something. In this context, banks offer interest as a way to encourage customers to open accounts. Therefore, the correct answer is "Encouragement".

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• 2.

### Which of these in an opinion about interest?

• A.

Most American banks offer interest rates below 10 percent

• B.

Interest can be compounded yearly, monthly, or even daily

• C.

An interest rate of 20 percent ,compounded monthly, is too high

• D.

None of the above

C. An interest rate of 20 percent ,compounded monthly, is too high
Explanation
The given statement, "An interest rate of 20 percent, compounded monthly, is too high," is an opinion about interest. It expresses the belief that a 20 percent interest rate, compounded monthly, is considered excessive or unreasonable.

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• 3.

### How can you compare simple and compound interest?

• A.

Simple interest is paid on the principal plus accurate interest; simple interest is paid only on the principal

• B.

Compound interest is paid on the principal plus accurate interest

• C.

Compound interest is paid out once a month; simple interest is paid only on the principal

• D.

None of the above

B. Compound interest is paid on the principal plus accurate interest
Explanation
Compound interest is paid on the principal plus accurate interest, meaning that the interest is calculated not only on the initial principal amount but also on the accumulated interest over time. This results in a higher total amount of interest earned compared to simple interest, which is only calculated on the principal amount. Simple interest does not take into account the interest that has already been earned. Therefore, compound interest is a more advantageous option for earning interest on an investment or loan.

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• 4.

### Which of the following statements is true?

• A.

The more money you have in the bank, the less interest you accumulate

• B.

The more money you have in the bank, the less interest you pay

• C.

The more money you have in the blank, the more interest you accumulate

• D.

None of the above

C. The more money you have in the blank, the more interest you accumulate
Explanation
This statement is true because when you have more money in the bank, the bank pays you interest based on the amount of money you have deposited. The more money you have, the more interest you will earn.

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• 5.

### How does charging interest encourage banks to make loans?

• A.

It allows them to make profits by lending money

• B.

It ensures that borrowers will pay them back

• C.

It discourages people from borrowing money from their friends

• D.

None of the above

A. It allows them to make profits by lending money
Explanation
Charging interest encourages banks to make loans because it allows them to make profits by lending money. When banks charge interest on loans, they earn additional income from the interest payments made by borrowers. This helps banks generate profits and cover their operational costs. Without the ability to charge interest, banks would have less incentive to lend money, as they would not be able to earn a return on their loans. Therefore, charging interest is a key factor in encouraging banks to make loans.

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• 6.

### Which of the following is true?

• A.

You pay interest when you borrow money and earn interest when you loan money

• B.

You earn interest when you borrow money and pay interest when you loan money

• C.

You pay interest both when you borrow and loan money

• D.

None of the above

A. You pay interest when you borrow money and earn interest when you loan money
Explanation
When you borrow money, you are required to pay interest on the amount borrowed as a fee for using the lender's money. On the other hand, when you loan money to someone else, they are the ones who pay you interest as compensation for using your money. Therefore, the statement "You pay interest when you borrow money and earn interest when you loan money" is true.

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• 7.

### If your bank offers 6 percent annual simple interest, and you start with \$60 in your account, how much will you have after one year?

• A.

\$70.00

• B.

\$66.30

• C.

\$63.60

• D.

\$80.00

C. \$63.60
Explanation
If the bank offers 6 percent annual simple interest, it means that the interest is calculated only on the initial amount and does not compound over time. So, after one year, the interest earned would be 6 percent of \$60, which is \$3.60. Adding this interest to the initial amount, the total amount in the account after one year would be \$60 + \$3.60 = \$63.60.

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• 8.

### If your bank offers 6 percent monthly simple interest , and you start with \$60 in your account, how much will you have after one year?

• A.

\$103.20

• B.

\$63.60

• C.

\$120.00

• D.

\$64.60

A. \$103.20
Explanation
If the bank offers 6 percent monthly simple interest, it means that the interest is calculated on the initial amount each month. After one year, there would be 12 months. So, the interest earned each month would be 6 percent of \$60, which is \$3.60. Multiplying this by 12 gives us a total interest of \$43.20. Adding this to the initial amount of \$60, the total amount after one year would be \$103.20.

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• 9.

### What can you infer about compound interest from the information presented in the movie?

• A.

It's not worth calculating unless you make a large initial deposit

• B.

Very few banks offer it

• C.

It allows people with savings accounts to accumulate more money than they would with simple interest

• D.

None of the above

C. It allows people with savings accounts to accumulate more money than they would with simple interest
Explanation
The correct answer suggests that compound interest allows people with savings accounts to accumulate more money than they would with simple interest. This implies that compound interest is a beneficial financial concept that enables individuals to earn more on their savings over time.

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• 10.

### How might life be different if banks didn't offer interest on savings accounts, or charge interest on loans?

• A.

People would open fewer bank accounts, and banks would offer fewer loans

• B.

People would open more bank accounts, and banks would offer more loans

• C.

People would open fewer bank accounts, but banks would offer more loans

• D.

None of the above

A. People would open fewer bank accounts, and banks would offer fewer loans
Explanation
If banks didn't offer interest on savings accounts, or charge interest on loans, people would have less incentive to save money in banks. As a result, they would open fewer bank accounts. Additionally, without the potential to earn interest on their savings, individuals may be less inclined to borrow money from banks, leading to fewer loans being offered by banks. Therefore, the correct answer is that people would open fewer bank accounts, and banks would offer fewer loans.

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• Current Version
• Mar 21, 2023
Quiz Edited by
ProProfs Editorial Team
• Aug 21, 2013
Quiz Created by
Lauren_hairston

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