As a college student, you work out a deal with your local bank such that you borrow $12,000 on the day you start college. The terms of the loan include an interest rate of 5%. The terms also stipulate that the principle is due in full one year after you graduate. Interest is to be paid annually at the end of each year. If you complete college in four years, how much total interest will you pay to the bank?

Question

Quizplus · Accepted Answer

The interest is calculated annually at 5% on the principal of $12,000. Over four years, the total interest paid is 4 * 0.05 * $12,000 = $2,400. However, the interest for the fifth year (the year after graduation) is also paid, making it 5 * 0.05 * $12,000 = $3,000.

As a College Student, You Work Out a Deal with Your