According to Application 5.1, "Interest Rates and Investment Spending,"the total interest paid on a $200,000 five-year loan at 18 percent is:
A) $36,000.
B) $180,000.
C) less than three times as great as the total interest paid at 6 percent.
D) more than three times as great as the total interest paid at 6 percent.

Question

Quizplus · Accepted Answer

The total interest paid on a $200,000 loan at 18 percent for five years is $180,000 (200,000 * 0.18 * 5). Comparing this to the interest paid at 6 percent for the same period, which would be $60,000 (200,000 * 0.06 * 5), the interest paid at 18 percent is exactly three times as much, not less. Therefore, the correct statement is that it is more than three times as great when considering the principle of how interest calculations work in real scenarios, where compounded interest could make the total amount paid at a higher rate more than simply three times the amount at a lower rate. However, based on the straightforward calculation provided, it exactly matches three times the amount, but the correct choice is based on the comparison being "more than three times as great" due to the nature of interest calculations over time.