Simple Interest Problems Solution for Set 2 Question 1
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Solution to Question 1
You're going to have to do this question in two bits. One part is to work out how much interest Aditya will have to pay over the 36 months. The other is to work out the total amount Aditya has to pay back. So the first thing to do is determine what the amount of simple interest payable is. We get to use the simple interest formula:
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 5%. 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. In the question, it says the term length is 36 months. Well, how many years is 36 months? We get this by dividing by twelve, to get an answer of 3.0 years. So our term length is 3.0 years:
simple interest paid = ($5000 * 5 * 3.0) / 100
simple interest paid = $750.00
Now we need to work out the total amount of money that Aditya will have to pay back. This is going to be the initial amount he borrowed (the principal) plus the interest:
total amount = simple interest + principal
total amount = $750.00 + $5000
total amount = $5750.00.
In total, Aditya will end up paying back $5750.00 to the Capital City Bank.