Question

stephine is taking out a loan in the amount of 15000. her choices for the loan are a 4-year loan at 3% simple interest and a 5 year loan at 5% simple interest. what is the difference in the amount of interest stephine would have to pay for each of these two loans?​

Answer 1

$1950

Explanation:

The equation for simple interest is
`I = P(rt)`

I is the total interest. We need to find this.

P is the principal, or the starting value.

r is the rate in decimal form.

t is the time, usually in years.

Use this formula to calculate the interest for Stephine's two choices.

4-year loan at 3% simple interest

Find the decimal form of percentages by dividing the percentage by 100. 3% in decimal form is 0.03. This is "r".

"t" is 4 because it's a four year loan.

P is 15000.

Substitute the known variables (P, t, r) then solve to find I.

I = P(rt)

I = 15000(0.03)(4)

I = 15000(0.12)

I = 1800

5 year loan at 5% simple interest

Find the decimal form of percentages by dividing the percentage by 100. 5% in decimal form is 0.05. This is "r".

"t" is 5 because it's a five year loan.

P is 15000.

Substitute the known variables (P, t, r) then solve to find I.

I = P(1+rt)

I = 15000(0.05)(5)

I = 15000(0.25)

I = 3750

To find the difference in the amount of interest, subtract the smaller value from the greater value.

Since 3750 is greater than 1800:

3750 - 1800 = 1950

The difference in interest is $1950 for the two loans.