Simple Interest Problems Solution for Set 7 Question 10
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Solution to Question 10
You're going to have to do this question in two bits. Nick is going to have to pay a certain amount of interest over the period of 6 months. This has to be worked out. The second thing you're going to have to do is calculate how much money in total Nick will end up paying 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 - $500. We also need the interest rate PER YEAR, which is 6%. 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 6 months according to the problem. Well, how many years is 6 months? We get this by dividing by twelve, to get an answer of 0.5 years. So our term length is 0.5 years:
simple interest paid = ($500 * 6 * 0.5) / 100
simple interest paid = $15.00
Now we need to work out the total amount of money that Nick will have to pay back. We know that Nick has to pay back the actual amount he borrowed (the principal), as well as the interest:
total amount = simple interest + principal
total amount = $15.00 + $500
total amount = $515.00.
So the total amount Nick will have to pay back to the First Commonwealth Bank is $515.00.