Simple Interest Problems Solution for Set 9 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 Kolby will have to pay over the 54 months. The other is to work out the total amount Kolby 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 amount initially loaned is the principal, so that's $2500. We also need the interest rate PER YEAR, which is 2%. 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 54 months according to the problem. Well, how many years is 54 months? It's 4.5 years. So our term length is 4.5 years:
simple interest paid = ($2500 * 2 * 4.5) / 100
simple interest paid = $225.00
Now we need to work out the total amount of money that Kolby will have to pay back. We know that Kolby has to pay back the actual amount he borrowed (the principal), as well as the interest:
total amount = simple interest + principal
total amount = $225.00 + $2500
total amount = $2725.00.
In total, Kolby will end up paying back $2725.00 to the GE Capital Financial.