Question

50 points

Christine wants to buy a new house but needs money for the down payment. Her parents agree to lend her money at an annual rate of 5%, charged as simple interest. They lend her $4000 for 2 years. She makes no payments except the one at the end of that time.

(a) How much total interest will Christine have to pay?
(b) What will the total repayment amount be (including interest)?

Answer 1

(a) Christine will have to pay $400 in total interest.

(b) Christine will have to repay a total of $4400, including interest.

Explanation:

(a) The interest charged on the loan is calculated as simple interest, which means that it is calculated as a percentage of the principal amount for each year. The interest rate is 5%, and the principal amount is $4000.

The total interest charged on the loan is:

Interest = Principal x Rate x Time

Interest = $4000 x 0.05 x 2

Interest = $400

Therefore, Christine will have to pay $400 in total interest.

(b) The total repayment amount is the sum of the principal and the interest charged on the loan.

Total repayment amount = Principal + Interest

Total repayment amount = $4000 + $400

Total repayment amount = $4400

Therefore, Christine will have to repay a total of $4400, including interest.