A loan of $15,000 is taken out with interest at j₄ = 8%.What is the total amount of interest due on the loan in the second year?

Question

Quizplus · Accepted Answer

We know that the loan amount is $15,000 and the interest rate is 8%. 
Thus, the interest due in the first year = 8% of $15,000 = $1,200. 
The interest in the second year will also be $1,200 because we are not told that the interest rate changes. 
However, we need to add the interest on the interest (i.e. compound interest) for the second year: 
8% of $1,200 = $96 
Therefore, the total amount of interest due in the second year = $1,200 + $96= $1,296. 
Hence, the best choice is A.

A Loan of $15,000 Is Taken Out with Interest at J4

A Loan of $15,000 Is Taken Out with Interest at J₄