Question

Robert gets a loan from his bank

he agrees to £6000 at a fixed annual simple interest rate of 7%
He also agrees to pay the loan back over a 10 year period

How much money in total will he have paid back at the end of the 10 years

Answer 1

10,200

6,000× .07× 10= 4,200

add that to 6000= 10,200

Answer 2

Explanation:

the formula for simple interest is:

i = p * r * n

f = p + i

combine the two formulas together and you get f = p + p * r * n.

factor out the p to get f = p * (1 + r * n).

i is the interest

p is the present value or principal

r is the interest rate per time period

n is the number of time periods.

f is the future value

in your problem:

p equals 6000

r = .07 per year

n = 10 years.

the formula becomes 6000 * (1 + .07 * 10) = 6000 * 1.7 = 10200.

if you calculated it separately from i = p * r * n and then f = p * i, you would get the same result.

i = p * r * n becomes i = 6000 * .07 * 10 which becomes 4200.

f = p + i becomes f = 6000 + 4200 which becomes 10200