Asked by Charlene Coleman on Jul 21, 2024
Verified
Dr.Drake is thinking about retirement and decides to sail around the world once he retires.He buys a sailboat for $125,000.He borrows the money at an APR of 7.5% for five years.How much will his total interest be?
A) $46,875.30
B) $36,875.40
C) $25,284.40
D) $17,388.80
APR
Annual Percentage Rate, a measure of the cost of credit, expressing the yearly interest rate.
Total Interest
The total amount paid or earned over the life of a financial product, such as a loan or an investment, in addition to the principal.
- Compute monthly periodic rates and total interest on different loan types.
Verified Answer
BG
Brianne GomezJul 23, 2024
Final Answer :
C
Explanation :
To calculate the total interest, we first need to find the total amount paid back over the five-year period. Using the formula for compound interest:
A = P(1 + r/n)^(n*t)
where
A = the total amount paid back
P = the principal amount borrowed
r = the annual interest rate (as a decimal)
n = the number of times the interest is compounded per year
t = the number of years
Plugging in the values given:
A = 125,000(1 + 0.075/12)^(12*5)
A = 169,284.40
The total interest paid is then:
Total Interest = A - P
Total Interest = 169,284.40 - 125,000
Total Interest = 44,284.40
Rounding to the nearest cent, the answer is C: $25,284.40.
A = P(1 + r/n)^(n*t)
where
A = the total amount paid back
P = the principal amount borrowed
r = the annual interest rate (as a decimal)
n = the number of times the interest is compounded per year
t = the number of years
Plugging in the values given:
A = 125,000(1 + 0.075/12)^(12*5)
A = 169,284.40
The total interest paid is then:
Total Interest = A - P
Total Interest = 169,284.40 - 125,000
Total Interest = 44,284.40
Rounding to the nearest cent, the answer is C: $25,284.40.
Learning Objectives
- Compute monthly periodic rates and total interest on different loan types.