Question

-You have offered your friend a $15,000 loan with 7% simple interest per year for 8 years. How much interest will you earn on the loan?

-You are earning interest on money in your bank account at a rate of 4% compounded annually. If you deposit $7,000 in the account for 7 years, how much ineterst will you earn?

-You need $21000 to purchase a really sweet Honda Civic. You negotiate a loan with the bank of Mom and Pop for the $21000 and agree that it will be repaid in 4 years. You agree on an interest rate of 11% per year compounded annually. How much would you owe after 4 years?

Answer 1

1)

^{Loan amount offered= $ 15,000}

^{simple interest rate = 7% p.a}

^{time= 8 years}

^{Interest= (loan amount * interest rate * Time)/100}

^{Interst= (15000 * 7 * 8)/100 = (150 * 7 *8) = (1200 *7) = $8400}

²⁾

^{interest rate = 4% p.a (r)}

^{deposit amount= principal= $7000 (P)}

^{time period =7 years (t)}

^{compounded amount: A= P(1+r)t}

^{A = 7000(1+0.04)7}

^{A= $ 9211.522}

Interst amount = $ ( 9211.522 - 7000)

= $2211.522

3)

loan amount taken = $21,000

should repaid after 4 years

Compounded rate = 11%

Amount paid after 4 years = $ 21,000(1+0.11)⁴

= $ 21000(1.518)

= $ 31,879.4786