Question

You purchase a car using a $23,000 loan with a 4% simple interest rate. Suppose you pay the loan off after 5 years. How much interest do you pay on your loan? Please show your math work and don't forget the unit!

a) $4,600
b) $2,300
c) $9,200
d) $920

Answer 1

Using the simple interest formula, I = PRT, the total interest paid on a $23,000 loan over 5 years at a 4% interest rate comes to $4,600. The correct answer is $4,600 in simple interest.

Step-by-step explanation:

To calculate the simple interest you would pay on a $23,000 loan with a 4% interest rate over 5 years, you can use the simple interest formula:

Interest (I) = Principal (P) × Rate (R) × Time (T)

Substituting the given values into the formula gives us:

I = $23,000 × 0.04 × 5

I = $4,600

Therefore, after 5 years, you would pay $4,600 in simple interest on your loan. The correct answer is option a) $4,600.