Final answer:
To calculate the total payment Mr. John Rollen should make for his loan, one must know if it's simple or compound interest and apply the appropriate formula. For simple interest, the formula is Interest = Principal × Rate × Time. The total payment is the principal plus the calculated interest.
Step-by-step explanation:
To find out how much Mr. John Rollen should pay for his loan, including the principal and the interest, we start with understanding the method for calculating interest. If we're dealing with simple interest, the formula is Interest = Principal × Rate × Time, where the principal is the original loan amount, the rate is the interest rate, and the time is the length of the loan in years. Then, we calculate the total payment by adding this interest to the principal.
For example, if Mr. Rollen borrowed $1,000 at a 5% annual simple interest rate for 3 years, the interest would be calculated as $1,000 × 0.05 × 3 = $150. The total amount he would pay back is $1,000 (the principal) plus $150 (the interest), which equals $1,150.
With compound interest, the interest calculation includes not only the principal but also the accumulated interest over time. This is more complex than simple interest and often requires a specific formula or a calculator.
Understanding these concepts helps us appreciate how loans can accumulate a significant amount of interest over time and why it's crucial to consider the interest rate when taking out a loan.