Question

Marty took a $5000 loan from a financial institute at a rate of 6%, which should be repaid in two equal installments of $2575.25 made every 4 months . How much more interest would have been paid , had Marty paid it in a single installment after 8 months? Select one : O A . $75.25 O B. $150.50 O $200 O D. $ O E \$49.50

Answer 1

Amount of Interest paid on 1st payment = Loan amount * (4 months / 12 months) * interest rate

Amount of Interest paid on 1st payment = $5000 * (4 / 12) * 6%

Amount of Interest paid on 1st payment = $100

Amount of Interest paid on 2nd payment = (Loan Amount + Amount of Interest paid on 1st payment - 1st payment) * (4 months / 12 months) * interest rate

Amount of Interest paid on 2nd payment = ($5000 + $100 - $2575.25) * (4 / 12) * 6%

Amount of Interest paid on 2nd payment = $50.50

Total interest paid = Amount of Interest paid on 1st payment + Amount of Interest paid on 2nd payment

Total interest paid = $100 + $50.50

Total interest paid for 2 payment every 4 month= $150.50

If interest is paid after 8 months

Interest paid = Loan amount * (8 months / 12 months) * Interest rate

Interest paid = $5000 * (8 / 12) * 6%

Interest paid for single payment after 8 months = $200

Difference in Interest = Interest paid for single payment after 8 months - Total interest paid for 2 payment every 4 month

Difference in Interest = $200 - $150.50

Difference in Interest = $49.50

$49.50 more interest would be paid in a single payment to payoff the loan after 8 months.