Simple Interest Problems Solution for Set 3 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 Joshua will have to pay over the 24 months. The other is to work out the total amount Joshua has to pay back. So the first thing to do is determine what the amount of simple interest payable is. For this we'll need to call on the formula for calculating simple interest:
simple interest paid = (principal * interest rate * term length) / 100
The amount initially loaned is the principal, so that's $4000. The interest rate is 10% per year. 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 24 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 2.0 years. So our term length is 2.0 years:
simple interest paid = ($4000 * 10 * 2.0) / 100
simple interest paid = $800.00
So now for the second part of the question, which is working out the total amount Joshua will have to pay back. We know that Joshua has to pay back the actual amount he borrowed (the principal), as well as the interest:
total amount = simple interest + principal
total amount = $800.00 + $4000
total amount = $4800.00.
In total, Joshua will end up paying back $4800.00 to the People's United Bank.