Question

Cara needs a loan for $10,000 to purchase a car. Which loan option would be the worst option with the MOST amount of interest? Question 4 options: 2 year loan with a 4.75% simple interest rate 2.5 year loan with a 4% simple interest rate 3 year loan with a 4.25% simple interest rate 5 year loan with a 3% simple interest rate

Answer 1

The case 4- 5 year loan with a 3% simple interest yields MOST interest.

Explanation:

Here, P = 10,000

Now, we need to calculate the Simple Interest in difference cases.

SIMPLE INTEREST =
`(P * R * T)/(100)`

CASE : 1 Time = 2 year, Rate = 4.75%

⇒SIMPLE INTEREST =
`(10,000 * 4.75 * 2)/(100)`

= 950

So, SI on $10,000 for 2 years on Rate 4.75% is $950.

CASE : 2 Time = 2 .5 year, Rate = 4%

⇒SIMPLE INTEREST =
`(10,000 * 4 * 2.5)/(100)`

= $1000

So, SI on $10,000 for 2.5 years on Rate 4% is $1000.

CASE : 3 Time = 3 year, Rate = 4.25%

⇒SIMPLE INTEREST =
`(10,000 * 4.25 * 3)/(100)`

= 1275

So, SI on $10,000 for 3 years on Rate 4.25% is $1275.

CASE : 4 Time = 5 year, Rate =3%

⇒SIMPLE INTEREST =
`(10,000 * 3 * 5)/(100)`

= 1500

So, SI on $10,000 for 5 years on Rate 3% is $1500.

Hence, the case 4 yields the MOST amount of interest.

simple interest rate 5 year loan with a 3% simple interest rate is option 4