Question

Susan borrowed $700 from a bank that charges simple interest at a rate of 12% .She borrowed this money for 2 years

Answer 1

Simple Interest $168

Compound interest $178

Explanation:

Simple Interest is calculated by multiplying the the principal amount, interest rate per period and numbers of period.

Formula

I = Prt

I = Interest amount

P = Principal = $700

r = interest rate = 12% per year

t = time period = 2 years

I = $700 x 12% x 2 Year

I = $168

In Compounding the interest is reinvested to earn the interest on reinvested amount. Accumulated value of each period is reinvested. Compound interest is the interest on interest value.

Formula for compounding interest is as follow

A = P ( 1 + r )^t

A = Compounded Value

P = Principal = $700

r = interest rate = 12% per year

t = time period = 2 years

Placing values in the formula

A = $700 x ( 1 + 12% )^2

A = $878

Compound Interest = Compounded Value - Principal value = $878 - $700 = $178

Answer 2

The interest on the loan is $168

The principal plus interest is $868

Explanation:

The interest on the amount is given by the formula below:

I=PRT

I is the interest on the loan,which is the unknown

P is the actual amount borrowed known as the principal which is $700

T is the duration of the loan in years which is years

R is the rate of interest on the loan which is 12% annually

I=$700*12%*2

I=700*0.12*2=$168

In other words,by borrowing $700 ,Susan would pay back the $700 plus $168 interest,which totals $868 in two years time