savings account

Question

Christine Chu borrowed $4500 from a bank at a simple interest rate of 2.5% for one year. a) Determine how much interest Christine paid at the end of 1 year. b) Determine the total amount Christine will repay the bank at the end of 1 year.

Answer 1

a) Simple interest is calculated by taking the initial value, or principal, and multiplying it by the interest rate and time. It gives you the formula A = P(1+rt) where A is the total amount, P is the principal, r is the interest rate expressed as a decimal, and t is the time.

 

Let's apply this to your equation.

You're trying to solve for A, or the total AMOUNT (see what I did there) Christine will pay back at the end of the year.

 

At this point, you plug in the parts of the equation you do know.

A = 4500(1+0.025*1)= 4500(1.025) = 4612.5 or $4612.50