Simple Interest Problems Solution for Set 4 Question 1
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Solution to Question 1
You're going to have to do this question in two bits. Darien is going to have to pay a certain amount of interest over the period of 36 months. This has to be worked out. The second thing you're going to have to do is calculate how much money in total Darien will end up paying 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 4% per year. Remember that since we're dealing with an interest rate PER YEAR, we have to do everything else in terms of years. So that means writing the term length in years. The term length is 36 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 3.0 years. So our term length is 3.0 years:
simple interest paid = ($4000 * 4 * 3.0) / 100
simple interest paid = $480.00
Now we need to work out the total amount of money that Darien 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 = $480.00 + $4000
total amount = $4480.00.
In total, Darien will end up paying back $4480.00 to the Citizens Business Bank.