Question

1. You borrow $500 from a bank with a 5% annual interest and

the maturity date is in 3 years
a. How much would you pay in interest at the end of the
loan if you pay simple interest
b. How much would you pay in interest at the end of the
loan if you pay in compound interest

Answer 1

Explanation:

Discussing interest starts with the principal, or amount your account starts with. This could be a starting investment, or the starting amount of a loan. Interest, in its most simple form, is calculated as a percent of the principal. For example, if you borrowed $100 from a friend and agree to repay it with 5% interest, then the amount of interest you would pay would just be 5% of 100: $100(0.05) = $5. The total amount you would repay would be $105, the original principal plus the interest.