Question

Troy is buying a car that costs $15,000. He plans to get a 5-year loan to pay for it. He can get a loan for $15,000 or he can pay $3,000 from his savings account and get a loan for the rest. The savings account pays 2% simple interest per year. The simple interest rate for the loan is 0.5% per year. a) How much interest over a 5-year period will Troy receive on his $3,000 if he does not withdraw that money from his savings account? b) How much more interest will he pay to borrow $15,000 than $12,000? Why is the $15,000 option reasonable?

Answer 1

Answer:

a) $300

b) $75

Step-by-step explanation:

Cost of the Car = $15,000

a) Rate of interest received on savings(r) = 2%

Amount in savings account(p) =$3000

Time period(t) = 5 years

Simple interest = $\frac{P \times R \times t}{100}$

                         = $\frac{3000 \times 2 \times 5}{100}$

                          = $300

Interest received on savings account = $300

b) Rate of interest on loan = 0.5%

IF P= 15000

Interest =  $\frac{15000 \times 0.5 \times 5}{100}$

             = $375

If P= $12000

Interest =  $\frac{12000 \times 0.5 \times 5}{100}$

            = $300

Difference between the interest = $75

c) Taking loan of the whole amount that is of $15,000 is more reasonable because though the interest is more but Troy will receive interest($300) from his savings account as well. But if he withdraws $3000 from savings and takes the loan for the rest of the amount, he would have no earnings.