Question

To go on a summer trip, Kevin borrows $400. He makes no payments until the end of 5 years, when he pays off the entire loan. The lender charges simpleinterest at an annual rate of 3%.Answer the following questions. If necessary, refer to the list of financial formulas.(a) How much total interest will Kevin have to pay?(b) What will the total repayment amount be (including interest)?$0

Answer 1

Answer:

• (a)$60

,

• (b)$460

Explanation:

• The amount Kevin borrows, the Principal = $400

,

• Annual Rate at Simple Interest = 3%

,

• Time = 5 years

Part A

First, we determine the total interest Kevin will have to pay by using the simple interest formula:

$\begin{equation}Simple\: Interest=\frac{\text{Principal}\times \text{Rate}\times\text{Time}}{100}\end{equation}$

Substitute the known values:

$Simple\:Interest=\frac{400\times3\times5}{100}=\ 60$

The total interest Kevin will have to pay is $60.

Part B

Next, we find the total repayment amount.

$\begin{gathered} \text{Total Repayment Amount}=\text{ Loan Amount+Interest} \\ =400+60 \\ =\ 460 \end{gathered}$

The total repayment amount will be $460.