Question

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. (6 points, 3 for answer, 3 for 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. (6 points, 3 for answer, 3 for work)

Answer 1

1rst prt-
20,000 • .05 • 4 =$ 4,000 interest Grand total of 2,400
2nd prt-
20,000 • .05 • 2 =$ 2,000
20,000- 2,000 = $18,000 -how much you will save

Answer 2

Answer: Interest saved by paying the loan after two years instead paying it after 4 years is $2,000.

Explanation:

Simple interest, when time taken of 4 years

Principal amount borrowed from bank as a loan, P = $ 20,000

Interest Rate ,R = 5%

Time taken to repay the loan , T = 4 years

`\text{Simple interest }=(P* R* T)/(100)=(\$20,000* 5* 4)/(100)=\$4,000`

Simple interest ,when time taken of 2 years

Principal amount borrowed from bank as a loan, P = $ 20,000

Interest Rate ,R = 5%

Time taken to repay the loan = 2 years

`\text{Simple interest }=(P* R* T)/(100)=(\$20,000* 5* 2)/(100)=\$2,000`

Interest saved by paying the loan off sooner that is in 2 years:

=Simple interest paid in 4 years - Simple interest paid in 2 years.

= $4,000 - $2,000 = $2,000