Question

3. You purchase a car using a $20,000 loan with a 5% simple interest rate.

(a) Suppose you pay the loan off after 4 years. How much interest do you pay on your loan? Show your work.
(b) Suppose you pay the loan off after 2 years. How much interest do you save by paying the loan off sooner? Show your work.
Answer:

Answer 1

Answer:2,500

Explanation:

Answer 2

a) $4000

b) $2000

Explanation:

a)

interest = Principal x rate as decimal x time

interest = 20,000 x 0.05 x 4

interest = 4000

b)

interest = Principal x rate as decimal x time

interest = 20,000 x 0.05 x 2

interest = 2000

you save $2000 if you pay after 2 years