Financial Literacy

Question

Paula is investing in a block of seaside cottages and requires $845 000. She receives the approval of her bank at a rate of 4.75% over the course of 30 years

Answer 1

Basically what this question is saying is that the bank agreed to give Paula the $845,000 dollars she needs for her investment but in return she must pay interest at a rate of 4.75% over 30 years. I assume here that we are trying to find the total interest charged over the 30 years and to do so we will use the Simple Interest Equation. I=Prt where I is the interest, P is the principle or the $845,000 that Paula received from the bank and r is the rate of 4.75% and t is the 30 years or the year over the investment. Pluging in these values we get I=845,000*0.0475*30=$1,204,125. This is the amount of Interest that Paula is going to have to pay on her loan that she received from the bank. If we now wanted to find the final amount. We can add the principle and the interest together as follows. $845,000+$1,204,125=$2,049,125.00. This is the final amount of the loan given to Paula from the bank with the interest applied.