A loan of $5000 is taken for 2 years at a simple interest rate of 8% per annum.

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Question: A loan of $5000 is taken for 2 years at a simple interest rate of 8% per annum. What is the total interest paid?

Options:

Correct Answer: $800

Solution:

Simple Interest = Principal × Rate × Time / 100 = 5000 × 8 × 2 / 100 = $800

A loan of $5000 is taken for 2 years at a simple interest rate of 8% per annum. What is the total interest paid?

A loan of $5000 is taken for 2 years at a simple interest rate of 8% per annum. What is the total interest paid?

Step 1: Identify the principal amount (the initial loan). In this case, it is $5000.
Step 2: Identify the interest rate. Here, it is 8% per annum.
Step 3: Identify the time period for the loan. This loan is for 2 years.
Step 4: Use the simple interest formula: Simple Interest = Principal × Rate × Time / 100.
Step 5: Plug in the values: Simple Interest = 5000 × 8 × 2 / 100.
Step 6: Calculate the multiplication: 5000 × 8 = 40000, then 40000 × 2 = 80000.
Step 7: Divide by 100: 80000 / 100 = 800.
Step 8: The total interest paid over 2 years is $800.

Simple Interest Calculation – Understanding how to calculate simple interest using the formula: Interest = Principal × Rate × Time / 100.