Question

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

(a) How much interest do you pay on your loan if you pay off the loan in 4 years? Show your work.
(b) How much interest do you pay on your loan if you pay off the loan in 2 years? Show your work.
(c) How much interest do you save by paying the loan off in 2 years instead of 4? Show your work.
Answer:


Answer a b and c

Answer 1

So, in order to solve for interest, you use this, I=Prt
P= principal, initial deposit, 20,000
R= interest rate, (%), 5%
T= term(time), 4 and 2 (years)
I= interest, smaller amount than you principal ALWAYS

A: multiply the numbers with the formula I=prt, I= $20,000*5%*4= $4,000 (I used a calculator making my calculations on point and correct!)

B: same formula, just the term is being changed to two. I= Prt, I=20,000*5%*2= $2,000

C: for sure I'm correct because it says how much do you save by paying the loan off in 2 years instead of 4 which is simply basic subtraction of 4,000-2,000 giving you 2,000 as you final answer.
Note: 5% is equivalent to .05