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If Tito took a loan of $10000 from a bank to be repaid within 4 years, at 12% Simple interest per annum, then, he will have to pay overall $4800 as interest to the bank over 4 years and a total payment of $14800 at the end of the 4th year to repay and close off the loan.
As per the question statement, a bank charges 12% Simple interest per annum on cash loans to its clients and Tito took a loan of $10000 from the same bank to be repaid within 4 years.
We are required to calculate the overall interest Tito has to pay to bank if he repays and closes the loan at the end of 4th year, and also to calculate the total payment required to repay and close off the loan at the end of the 4th year.
To solve this question, we need to know the formula to calculate the interest amount in case of simple interest which goes as
Interest (I)
where, "P" = Principle amount of Loan,
"R" = Rate of simple interest charged on the principle per annum, and
"T" = Time period within which, the loan is to be repaid.
Here, (P = 10000), (R = 12%) and (T = 4). Then, the overall interest Tito will have to pay at the end of 4th year =
And total amount to be paid to repay and close of the loan at the end of 4th year will be = $[4800 + 10000] = $14800.
- Simple interest: As the name itself suggests, "Simple" interest refers to the straightforward crediting of cash flows associated with some investment or deposit.
To learn more about Simple Interest, click on the link below.
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