Question

3. 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.
(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.

Answer 1

(a) 20,000 × 5/100 × 4 = $4000( interest)



(b) 20000 × 5/100 × 2 = $2000 (interest)


How much do you save = $4000 - $2000 = $2000