Question

Hosea borrowed $20,000 to buy a new speed boat. The interest rate on his loan is 5%. If he plans to pay the loan back in three years, how much interest will he pay? What will be the total cost that he will owe including interest?

Answer 1

a. Interest amount is $3,000.

b. Total cost is $23,000.

Explanation:

a. How much interest will he pay

This can be calculated as follows:

Interest amount = Principal loan Amount * Interest rate * Number of years ........ (1)

Where;

Principal loan Amount = $20,000

Interest rate = 5%

Number of years = 3

Substituting the values into equation (1), we have:

Interest amount = $20,000 * 5% * 3 = $3,000

b. What will be the total cost that he will owe including interest?

Total cost = Principal loan Amount + Interest amount = $20,000 + $3,000 = $23,000