Simple Interest Problems Solution for Set 9 Question 10
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Solution to Question 10
You're going to have to do this question in two bits. Ernesto is going to have to pay a certain amount of interest over the period of 12 months. This has to be worked out. The second thing you're going to have to do is calculate how much money in total Ernesto will end up paying back. Let's calculate the interest first. 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. The interest rate is 2% 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 12 months according to the problem. Well, how many years is 12 months? We get this by dividing by twelve, to get an answer of 1.0 years. So our term length is 1.0 years:
simple interest paid = ($500 * 2 * 1.0) / 100
simple interest paid = $10.00
So now for the second part of the question, which is working out the total amount Ernesto will have to pay back. We know that Ernesto has to pay back the actual amount he borrowed (the principal), as well as the interest:
total amount = simple interest + principal
total amount = $10.00 + $500
total amount = $510.00.
So the total amount Ernesto will have to pay back to the UBS Bank USA is $510.00.