Simple Interest Problems Solution for Set 6 Question 1
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Solution to Question 1
So there are two parts to this question. One part is to work out how much interest Garret will have to pay over the 48 months. The other is to work out the total amount Garret has to pay 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 - $4000. The interest rate is 6% 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 48 months according to the problem. Well, how many years is 48 months? We get this by dividing by twelve, to get an answer of 4.0 years. So our term length is 4.0 years:
simple interest paid = ($4000 * 6 * 4.0) / 100
simple interest paid = $960.00
So now for the second part of the question, which is working out the total amount Garret will have to pay back. We know that Garret has to pay back the actual amount he borrowed (the principal), as well as the interest:
total amount = simple interest + principal
total amount = $960.00 + $4000
total amount = $4960.00.
In total, Garret will end up paying back $4960.00 to the Capital City Bank.