Question

A bank agrees to lend Tommy $6,500 to fund the purchase of a new car. The amount (plus interest) is repayable in five years, and the interest rate is 7% each year. What is the total amount that must be repaid? Give your answer in dollars to the nearest dollar. Do not include commas or the dollar sign in your answer. For example if your answer is $1,234.56 enter 1235.

Answer 1

8775

Explanation:

This is a simple interest problem.

The simple interest formula is given by:

`E = P*I*t`

In which E are the earnings, P is the principal(the initial amount of money), I is the interest rate(yearly, as a decimal) and t is the time.

After t years, the total amount of money is:

`T = E + P`.

In this problem, we have that:

`P = 6500, t = 5, I = 0.07`

So

`E = P*I*t`

`E = 6500*0.07*5`

`E = 2275`

Total

`T = E + P = 6500 + 2275 = 8775`