Answer:
The total cost of the loan with simple interest $2269.8 is less than the loan with compound interest $2299.12.
Explanation:
Simple Interest (I) = Principal (Loan)×Time×Rate ÷ 100
Loan = $1800
Time = 3 years
Rate = 8.7%
I = 1800×3×8.7/100 = $469.8
Total cost of loan with simple Interest = loan + simple interest = $1800 + $469.8 = $2269.8
Compound interest = [Loan(1+r)^n] - Loan
Loan = $1800
r is annual interest rate = 8.5% = 0.085
n is duration of the loan = 3 years
Compound interest = [1800(1+0.085)^3] - 1800 = 2299.12 - 1800 = $499.12
Loan with compound interest = 1800 + 499.12 = $2299.12
