Question

To go on a summer trip, Michael borrows $700 He makes no payments until the end of 5 years, when he pays off the entire loan. The lender charges simple

interest at an annual rate of 2%.
Answer the following questions.
necessary, refer to the list of financial formulas
(a) How much total interest will Michael have to pay?
(b) What will the total repayment amount be (including interest)?

Answer 1

Michael will have to pay a total simple interest of $70 on a $700 loan over 5 years at an annual rate of 2%. The total repayment amount, including the interest, will be $770.

Step-by-step explanation:

Calculating Simple Interest and Total Repayment Amount

To calculate the total interest Michael will have to pay on a $700 loan for 5 years at an annual simple interest rate of 2%, we will use the simple interest formula I = PRT, where I is the interest, P is the principal amount, R is the interest rate, and T is the time in years.

Using the formula, we get:
I = $700 * 0.02 * 5 = $14 * 5 = $70.

Thus, the total interest Michael will have to pay is $70.

To find out the total repayment amount including interest, we add the interest back to the principal amount:
Total repayment = Principal + Interest = $700 + $70 = $770.