Question

Drag the descriptions of each loan into order, from which will have the least simple interest owed to which will have the most simple interest owen.

- Loan of $2,500 at 4% simple interest for 6 years
- Loan of $2,000 at 12% simple interest for 6 years
- Loan of $2,000 at 4% simple interest for 16 years

Answer 1

• $2500 @ 4%
• $2000 @ 4%
• $2000 @ 12%

Explanation:

The amount of interest earned by each loan is computed using the formula ...

I = Prt

where P is the principal amount, r is the annual rate, and t is the time period in years.

In the order the loans are described in the problem statement, the interest amounts are ...

I1 = 2500·.04·6 = 600

I2 = 2000·.12·6 = 1440

I3 = 2000·.04·16 = 1280

From least-to-greatest, the interest owed will be associated with ...

• loan 1
• loan 3
• loan 2