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 and don’t forget the unit!
(b) Suppose you pay the loan off after 3 years. How much interest do you save by paying the loan off
sooner? Show your work and don’t forget the unit.
Answer: a) b)

Answer 1

the answer is A) I=prt; I=20,000(.05)(4) = $4000 b) I = prt; I = 20,000(.05)(2) = $2000 $4000-$2000 = $2000. You save $2000 by paying it off in 2 years vs. 4 years