Question

Araine borrows $400 on a 4-year loan. She is charged 5% simple interest per year. How much interest is she charged for 4 years? What is the total amount she has to pay back?

Answer 1

Interest Charged = $80

Total payback = $480

Explanation:

According to the scenario, computation of the given data are as follows,

Present Value (PV) = $400

Time period (n) = 4 years

Interest rate (r) = 5%

So, we can calculate the future value(FV), by using following formula,

FV = PV ( 1 + n × r)

By putting the value, we get

FV = $400 ( 1 + 4 × 0.05)

= $480

Hence total amount she has to pay back = $480.

Interest charged = FV - PV

= $480 - $400

=$80