Question

1. You purchase a car using a $15,000 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. (10 points)







(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. ( 5 points)

Answer 1

a) $3000

b) $1500

Explanation:

a)

interest = Principal x rate as decimal x time

interest = 15,000 x 0.05 x 4

interest = 3000

b)

interest = Principal x rate as decimal x time

interest = 15,000 x 0.05 x 2

interest = 1500

you save $1500 if you pay after 2 years