A bank charges a simple interest rate of 7% per annum. Jackie borrowed $10 000 to finance his expenses exactly 2 years ago and is now planning to pay his debt in full. How much money does Jackie owe the bank?
Question
A bank charges a simple interest rate of 7% per annum. Jackie borrowed $10 000 to finance his expenses exactly 2 years ago and is now planning to pay his debt in full. How much money does Jackie owe the bank?
Solution
To calculate the total amount Jackie owes the bank, we need to calculate the simple interest first and then add it to the principal amount.
Step 1: Calculate the simple interest. The formula for simple interest is I = PRT, where:
- I is the interest
- P is the principal amount (the initial amount of money)
- R is the rate of interest per period
- T is the time the money is borrowed for in years
In this case, P = $10,000, R = 7% (or 0.07 as a decimal), and T = 2 years.
So, I = PRT = 1,400.
Step 2: Add the interest to the principal amount. The total amount Jackie owes the bank is the principal amount plus the interest, which is 1,400 = $11,400.
So, Jackie owes the bank $11,400.
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