Question

A farmer borrowed $28,500 from the bank to build a new barn. The bank charges 4.5% annual simple interest and allowed the farmer to repay the loan in 42 monthly payments.

A. How much money was paid in interest?
B. How much was each monthly payment?

Answer 1

A) i = $4488.75

B) Amount paid per month = $785.45

Explanation:

A) Formula for simple interest is;

i = PRT

We are given;

Principal; P = $28500

Rate; R = 4.5% = 0.045

Time; T = 42 months = 42/12 years

Thus;

i = (28500 × 0.045 × (42/12))

i = $4488.75

B) Since interest was $4488.75 and principal is $28500,then total he paid after 42 months is;

Total = 28500 + 4488.75

Total = $32988.75

Amount paid per month = 32988.75/42 = $785.45