Question

Adam has a balance of $10,000 on a loan with an annual interest rate of 7%. To pay off the $10,000 in 4 years, Adam will have to make a minimum payment of $239.46 per month. To pay off the $10,000 in 7 years, Adam will have to make a minimum payment of $150.93 per month. How much more interest will Adam pay when the length of the loan changes from 4 years to 7 years? A) $988.20 B) $1,008.52 C) $1,184.04 D) $1,358.33

Answer 1

$1184.04

Explanation:

To pay off the $10,000 in 4 years, Adam will have to make a minimum payment of $239.46 per month.

So, the total amount that Adam has to pay back within 4 years with interest = $(239.46 × 4 × 12) = $11494.08

Again, to pay off the $10,000 in 7 years, Adam will have to make a minimum payment of $150.93 per month.

So, the total amount that Adam has to pay back within 7 years with interest = $(150.93 × 7 × 12) = $12678.12

Therefore, Adam has to pay $(12678.12 - 11494.08) = $1184.04 more interest when the length of the loan changes from 4 years to 7 years. (Answer)