Question

A bank agrees to lend 6,500 to fund the new purchase of a new car. The amount (plus interest) is repayable in 5 years, and the interest rate is 7% each year. What is the total amount that must be repaid?

Answer 1

the total amount that must be repaid is 8,775.

Explanation:

To calculate the total amount that must be repaid, we need to add the original loan amount to the total interest paid over the 5-year period.

First, we can calculate the total interest paid over the 5 years by using the following formula:

Total interest = Principal (loan amount) x Interest rate x Time

Where:

Principal = 6,500

Interest rate = 7% = 0.07 (decimal form)

Time = 5 years

Total interest = 6,500 x 0.07 x 5

Total interest = 2,275

So the total interest paid over the 5 years is 2,275.

Now, we can add the original loan amount to the total interest to get the total amount that must be repaid:

Total amount = Principal + Total interest

Total amount = 6,500 + 2,275

Total amount = 8,775

Therefore, the total amount that must be repaid is 8,775.