Question

Dr. Drake is thinking about retirement and decides to sail around the world once he retires. He buys a sailboat for $125,000. He borrows the money at an APR of 7.5% for five years. He uses the monthly payment formula comes up with a monthly payment of $2,504.74. How much will his total interest be?

Answer 1

$46875.

Explanation:

We have been given that Dr. Drake buys a sailboat for 125000. He borrows the money at an APR of 7.5% for five years.

We will find total interest after 5 years by using simple interest formula

A=P(1=rT), where,

A= Amount after T years.

P= Principal amount.

r= The annual interest rate (in decimal form).

T= Time in years.

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First of all we will convert our given interest rate from percent to decimal form.

7.5 precent= 0.075

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Now let us substitute our given values in above formula.

A=125,000 (1+(0.075 x 5))

A=125,000 (1+0.375)

A=125,000 (1.375)

A=171875

To find the amount of total interest we will subtract principal amount from 171875.

Total amount of interest= 171875 - 125000

Total Amount of interest= 46875

Therefore, the total interest after 5 years will be $46875.

I hope this helps :)