Simple Interest Problems Solution for Set 1 Question 1
Click here to return to the index page for all Simple Interest Problems
Solution to Question 1
You're going to have to do this question in two bits. Clay is going to have to pay a certain amount of interest over the period of 30 months. This has to be worked out. The second thing you're going to have to do is calculate how much money in total Clay will end up paying back. Let's calculate the interest first. For this we'll need to call on the formula for calculating simple interest:
simple interest paid = (principal * interest rate * term length) / 100
The principal is just the size of the loan - $5000. We also need the interest rate PER YEAR, which is 7%. The important thing to remember here is that since the interest rate is per per year, we must use the same unit of time (years) when we write down the term length. The term length is 30 months according to the problem. This term length must be converted into years. We get this by dividing by twelve, to get an answer of 2.5 years. So our term length is 2.5 years:
simple interest paid = ($5000 * 7 * 2.5) / 100
simple interest paid = $875.00
Now we need to work out the total amount of money that Clay will have to pay back. We know that Clay has to pay back the actual amount he borrowed (the principal), as well as the interest:
total amount = simple interest + principal
total amount = $875.00 + $5000
total amount = $5875.00.
So the total amount Clay will have to pay back to the Wilmington Trust Co. is $5875.00.