Question

Milton took out a loan for S2400 at 7% interest compounded annually the makes yearly payments of $140, will he ever pay off the loan?
A. Yes, because $140 is less than the amount of interest he is
charged per year.)
B. No, because $140 is greater than the amount of interest he is
charged per year.
C. Yes, because $140 is greater than the amount of interest he is
charged per year.
D. No, because $ 140 is less than the amount of interest he is
charged per year.​

Answer 1

Answer:

We will choose option D.

Step-by-step explanation:

Milton took out a loan for $2400 at 7% interest compounded annually.

So, after one year his loan will grow up to $2400(1 + \frac{7}{100} )^{1} = 2568$ dollars.

Therefore, the interest added to the principal is $(2568 - 2400) = $168

But Milton makes yearly payment of $140 which is less than the interest i.e. $168 which is added to his loan in the first year.

Therefore, he can not ever pay off the loan.  

So, we will choose option D. (Answer)