Question

Perry Mazza wants to borrow $30,000 from the bank. The interest rate is 6% and the term is for 5 years. What is the amount of interest paid?

Answer 1

Answer: In both the case amount of interest is paid are:

1) $9000

2) $10146.76

Explanation:

Since we have given that

Principle amount = $30000

Interest rate = 6%

Number of years = 5 years

we'll use " Simple interest " first,

As we know the formula for " Simple Interest ":

$I=\frac{P\times R\times T}{100}\\\\I=\frac{30000\times 6\times 5}{100}\\\\I= 9000$

Now, we'll do it by "Compound Interest "

$Amount=P(1+\frac{r}{100})^n\\\\Amount=30000(1+\frac{6}{100})^5\\\\Amount= 40146.76$

So,

$Interest = Amount-Principle\\\\Interest =40146.76-30000\\\\Interest =\ 10146.76$

Hence in both the case amount of interest is paid are:

1) $9000

2) $10146.76