Retest: Interest & Cost of Credit

Which type of interest is earned only on the principal?

• Simple

• Compound

• Both simple and compound

• None

Which of the following best describes interest as it relates to savings.

• Additional money earned for having an account

• The limit for which an individual may use credit

• The charge for the privilege of borrowing money

• The total amount a borrower must repay a lender for a loan

Savannah wants to calculate the interest that she would earn from investing $500 into an account that earns 4.5% annual compound interest for 60 months. Which formula should she use?

• A = 500(1+4.5)⁶⁰

• A = 500(1+4.5%)⁶⁰

• A = 500(1+4.5%)⁵

• A = 500(1+4.5)⁵

Juan has $4,000 that he plans to invest into an account that earns 6% simple interest. Assuming that he makes no additional deposits or withdrawals, how much interest will he earn after 12 years?

• $6,880

• $2,400

• $4,048

• $2,880

Sarah inherited $25,00 and she plans to invest it into a savings account that earns 5% interest compounded annually. Assuming that she makes no additional deposits or withdrawals, find the account balance after 15 years?

• $18,750

• $26,973.20

• $51,973.20

• $43,750

Larry has earned $1,500 and wants to put it into a savings account that earns 4% simple interest. Assuming that he makes no additional deposits or withdrawals, which represents the total value of Larry's account after 60 months?

• $300

• $1,800

• $1,824.98

• $3,600

Jim and Bill each invest $15,000 into savings accounts that earn 3.5% interest. Jim's account earns simple interest and Bill's account earns compound interest. After 25 years, who will earn more interest and how much more will he earn?

• Jim will earn $13,125 more in interest.

• Bill will earn $22,323.67 more in interest.

• Jim will earn $35,448.67 more in interest.

• Bill will earn $7,323.67 more in interest.

Heather will purchase a new $1,500 laptop by using a credit card with a 17% interest rate. She will pay off the balance in 2 years by paying monthly payments of $74.16. Calculate Heather's total cost of repayment.

Mathematical Equivalence

ON

Trey decides to consolidate his debt and qualifies for a personal loan of $10,000 to help pay off his current credit. He qualifies for an interest rate of 4.29% and is choosing between a term of 5 or 10 years.

5 year monthly payment $185.48

10 year monthly payment $102.63

Which term will result in the lowest total repayment, and how much lower will the repayment be?

• The 5-year term would be $1,128.80 lower.

• The 5-year term would be $1,186.80 lower.

• The 10-year term would be $2,315.60 lower.

• The 10-year term would be $1,186.80 lower.