Question

3. You purchase a car using a $20,000 loan with a 5% simple interest rate.

(a) Suppose you pay the loan off after 4 years. How much interest do you pay on your loan? Show your work.
(b) Suppose you pay the loan off after 2 years. How much interest do you save by paying the loan off sooner? Show your work.

Answer 1

I=PRT
P=principal
R=rate
T=time in years

A.
P=20000
R=5%=0.05
T=4
I=2000*0.05*4
I=1000*4
I=4000
interest=$4000

B. T=2 this time
I=20000*0.05*2
I=1000*2
I=2000
you save 4000-2000=2000



A. $4000
B. $2000, save $2000