Question

Ariana borrows $400 on a four year loan. She is charged 5% simple interest per year. How much interest is she charged for four years? What is the total amount she has to pay back?

Answer 1

The simple interest formula is

`\begin{gathered} A=P(1+rt) \\ P\rightarrow\text{ initial amount} \\ r\rightarrow\text{ interest rate} \\ t\rightarrow\text{ number of years} \\ A\rightarrow\text{ final balance} \end{gathered}`

Therefore, in our case, the final balance is

`A=400(1+5\%*4)=400(1+0.05*4)=400(1+0.2)=400(1.2)=480`

As for the interest,

`I=A-P=480-400=80`

Therefore, the charged interest is $80, and the total debt is $480