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 amount to be paid back?

Options:

Correct Answer: $5600

Solution:

Total Amount = Principal + Simple Interest = 5000 + (5000 × 8 × 2 / 100) = $5600.

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

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

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. It is 2 years.
Step 4: Calculate the simple interest using the formula: Simple Interest = Principal × Rate × Time / 100.
Step 5: Plug in the values: Simple Interest = 5000 × 8 × 2 / 100.
Step 6: Calculate the simple interest: 5000 × 8 = 40000; then 40000 × 2 = 80000; finally, 80000 / 100 = 800.
Step 7: Now, add the simple interest to the principal to find the total amount to be paid back: Total Amount = Principal + Simple Interest = 5000 + 800.
Step 8: Calculate the total amount: 5000 + 800 = 5800.

Simple Interest Calculation – Understanding how to calculate simple interest using the formula: Interest = Principal × Rate × Time.
Total Amount Calculation – Knowing how to find the total amount to be paid back by adding the principal to the calculated interest.