Question 6 (5%)

a) Use Formula, Interest = Pin

P = Principal sum borrowed

i = simple interest rate

n = number of periods

Jamesa gets a loan from his mum to buy a cheap secondhand car. His mum lets him have $5000 for 4 years at 5% simple interest rate. Jamesa contracts to pay interest to his mum annually and to pay back the debt at the end of the four years.

i) How much is the annual interest?

ii) How much is paid at the end of year four?