Vickie wants to borrow $5,000 for three years.She will repay the $5,000 plus the finance charges in one lump sum at the end of the three-year period.If the lender charges her 12 percent add-on interest,how much will Vickie pay in finance charges?

Question

Quizplus · Accepted Answer

To calculate the finance charges, we need to first determine the total amount that Vickie will repay at the end of the three-year period.

The add-on interest of 12 percent means that Vickie will borrow $5,000 and then be charged an additional 12 percent of $5,000 for a total of $600 per year in interest charges. Over three years, this totals:

$600 x 3 = $1,800

So Vickie will repay $5,000 (the principal) + $1,800 (the interest) = $6,800 at the end of the three-year period. Therefore, she will pay $1,800 in finance charges.

So, the best choice is (B).

Vickie Wants to Borrow $5,000 for Three Years