Understanding Credit Practice

Question

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Question
Determine the cost of credit for a $3,300 loan with a simple interest rate of 8% and a one-time payment to pay the amount in full at the end of a 4-year term. Round the answer to two decimal places as needed.(1 point)
The cost of credit is $
.
Remaining Attempts : 3

Answer 1

To determine the cost of credit for a loan using simple interest, you can use the formula:

\[ \text{Interest} = P \times r \times t \]

Where:

• \( P \) = Principal amount (the initial loan amount)
• \( r \) = Interest rate (as a decimal)
• \( t \) = Time (in years)

In this case:

• \( P = 3,300 \)
• \( r = 8% = 0.08 \)
• \( t = 4 \) years

Now plug in the values:

\[ \text{Interest} = 3,300 \times 0.08 \times 4 \] \[ \text{Interest} = 3,300 \times 0.32 \] \[ \text{Interest} = 1,056 \]

The cost of credit, which is the total interest paid, is $1,056.00.

So, the cost of credit is $1,056.00.