Question

You ask the bank for a $20,000 loan in order to purchase a new vehicle. The bank

grants you the loan at a 2.5% interest rate. If you pay your loan off in 5 years, how
much interest did you pay? A) $1,250
B) $2,500
C) $5,000
D) $10,000

Answer 1

The total interest paid on a $20,000 loan at a 2.5% interest rate over 5 years is $2,500, option B. So, the correct option is B) $2,500

Step-by-step explanation:

To calculate the interest paid on a $20,000 loan with a 2.5% interest rate over 5 years using simple interest, one would use the formula Interest = Principal × Rate × Time.

The principal, in this case, is $20,000, the rate is 2.5% (which is 0.025 when expressed as a decimal), and the time is 5 years. Using the formula:

Interest = $20,000 × 0.025 × 5

Interest = $2,500

Therefore, the total interest paid over 5 years would be $2,500, which corresponds to option B.