John borrowed $20,000 to finance his college education. If the finance charge on the loan is 6 percent, and he will pay off the loan in 10 equal, annual, end-of-year payments, how much total interest will he pay?

Question

Quizplus · Accepted Answer

The total interest paid on a loan can be calculated by subtracting the principal amount from the total amount paid over the life of the loan. Given a loan of $20,000 at a 6% interest rate with 10 equal annual payments, we can use the formula for an amortizing loan to find the total payment amount and then calculate the total interest paid. The correct answer reflects the total interest paid over the 10 years, which is $7,173.90, indicating that the total amount paid back exceeds the principal by this interest amount.

John Borrowed $20,000 to Finance His College Education