If N25,000.00 is kept in a bank at the rate of 2% simple interest, how much will it amount to at the end of 5 years?

Analyze the question: We need the amount (total money) after 5 years, not just the interest. Amount = Principal + Interest.

Concept: Simple interest is calculated only on the original principal:

I = (P × R × T) / 100

Amount (A) = P + I

Solution:

• P = N25,000
• R = 2%
• T = 5 years

Interest: I = (25,000 × 2 × 5) / 100 I = 250,000 / 100 I = N2,500

Amount: A = 25,000 + 2,500 = N27,500

Wait, let me double-check the interest: 2% of 25,000 = N500 per year, and 500 × 5 = N2,500. ✔

So the amount at the end of 5 years is N27,500.

Why not the others?

• A (N2,500) is only the interest, not the total amount. This is the common trap.
• B, C and E come from wrongly applying the formula.

Exam tip: Always check whether the question asks for the "interest" or the "amount". If it says "amount to", "total" or "worth", add the interest to the principal. A quick shortcut is A = P(1 + RT/100) = 25,000(1 + 0.10) = 25,000 × 1.1 = N27,500.