A) 2 years at 3% interest = $10,617.57
Step-by-step explanation:
loan amount (P) = $10,000
interest is compound monthly :
A = P (1 + r/n)^n*t
find:
which of these loan terms will have the lowest total cost?
A) 2 years at 3% interest
B) 3 years at 3% interest
C) 4 years at 3% interest
D) 5 years at 3% interest
solution:
plugin the values into the formula to get the accumulated monthly interest.
A. using 2 years at 3% interest
A = $10,000 ( 1 + 0.03 ) ¹² ˣ ²
12
= $10,617.57
B. using 3 years at 3% interest
A = $10,000 ( 1 + 0.03 ) ¹² ˣ ³
12
= $10,940.51
C. using 4 years at 3% interest
A = $10,000 ( 1 + 0.03 ) ¹² ˣ ⁴
12
= $11.273.28
D. using 5 years at 3% interest
A = $10,000 ( 1 + 0.03 ) ¹² ˣ ⁵
12
= $11,616.17
therefore, based on the above terms, option A which is $10,617.57
has the lowest accumulated monthly interest. (total cost)
