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)
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 use this formula:
Money = Loan x ( 1 + % )^month
In 4 years you have to pay 20,000x(1+5%)^48 = 208,025 dollars.
In 2 years you must pay 20,000x(1+5%)^24 = 64,501 dollars. Hence, you save $143,524.