Examkin

Question

Difficulty: EasySimple Interest

An individual borrows $4,000\$4,000 to purchase a used motorcycle. The loan has an annual simple interest rate of 7%7\%. If the loan is paid off in exactly 2424 months, how much total interest will the borrower pay?

  1. A
    $280\$280
  2. $560\$560Answer
  3. C
    $5,600\$5,600
  4. D
    $6,720\$6,720

Answer

The total interest paid is $560\$560.
The correct answer accurately uses the simple interest formula I=P×R×TI = P \times R \times T. The principal (PP) is $4,000\$4,000, the rate (RR) is 0.070.07, and the time (TT) in years is 22 (since 2424 months equals 22 years). Multiplying these together yields $4,000×0.07×2=$560\$4,000 \times 0.07 \times 2 = \$560.

Step-by-Step Solution

1
Identify the principal amount (PP), annual interest rate (RR), and time (TT) given in the problem.
P=$4,000P = \$4,000, R=7%R = 7\%, and T=24T = 24 months.
These are the required variables for the simple interest formula.
2
Convert the interest rate from a percentage to a decimal.
7%=0.077\% = 0.07
Mathematical formulas require percentages to be in decimal form.
3
Convert the time duration from months to years to match the annual interest rate.
24 months÷12 months/year=2 years24 \text{ months} \div 12 \text{ months/year} = 2 \text{ years}.
The interest rate is annual, so the time must also be in years.
4
Apply the simple interest formula, I=P×R×TI = P \times R \times T.
I=$4,000×0.07×2=$560I = \$4,000 \times 0.07 \times 2 = \$560.
This calculates the total interest accrued over the 2-year period.

Key Concept

Simple Interest Calculation with Time Conversion
Rate this question

Topics

Simple Interest

More questions from this topic