Calculate the future value of a $1,000 loan with 5% annual simple interest over 3 years.

• A. $1,100
• B. $1,200
• C. $1,250
• D. $1,150

Answer: (D)

Simple interest grows the initial amount by a fixed amount each year, so the total increase is rt and the future value is P(1 + rt). Here, P = 1000, r = 0.05, t = 3, so rt = 0.15. The future value is 1000 × 1.15 = 1,150. That means 50 in interest each year, for three years, totaling 150, added to the principal. The other options reflect larger total increases or different compounding, which isn’t the case with simple interest. If it were compound interest, the amount would be 1000 × (1.05)^3 ≈ 1,157.63, but this problem uses simple interest.