Simple Interest Problems Solution for Set 5 Question 10
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Solution to Question 10
So there are two parts to this question. One part is to work out how much interest Carmine will have to pay over the 42 months. The second thing you're going to have to do is calculate how much money in total Carmine 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 principal is just the size of the loan - $3500. We also need the interest rate PER YEAR, which is 2%. 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 42 months according to the problem. This term length must be converted into years. It's 3.5 years. So our term length is 3.5 years:
simple interest paid = ($3500 * 2 * 3.5) / 100
simple interest paid = $245.00
Now we need to work out the total amount of money that Carmine 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 = $245.00 + $3500
total amount = $3745.00.
So the total amount Carmine will have to pay back to the Sterling National Bank is $3745.00.