Assume you borrow $5,000 today and pay back the loan in one lump sum 4 years from today. You are charged 8% interest per year. What amount will you pay back and how much interest will you pay?
A) $6,399.56; $1,399.56
B) $6,508.21; $1,508.21
C) $6,802.44; $1802.44
D) $7,902.11; $2,902.11

Question

Quizplus · Accepted Answer

To calculate the amount to be paid back, we can use the formula:
Amount = Principal + (Principal * Rate * Time)
Here, Principal = $5,000, Rate = 8% per annum, Time = 4 years
So, Amount = $5,000 + ($5,000 * 8/100 * 4) = $6,800
Therefore, the amount to be paid back is $6,800.
To calculate the interest paid, we can subtract the principal from the amount:
Interest = Amount - Principal = $6,800 - $5,000 = $1,800
Therefore, the interest paid is $1,800.
The only option that matches these values is (C): $6,802.44; $1,802.44.

Assume You Borrow $5,000 Today and Pay Back the Loan