Q:

Mia borrowed $5,000 from her grandparents to pay college expenses.She pays them $125 each month,and simple interest at an annual rate of 5% on the remaining balance of the end of each year.How many months will it take her to paythe loan off? Explain For how many years will she pay interest ?Explain

Accepted Solution

A:
she pays 125 per month.
at the end of each year, she pays 5% on the remaining balance, after she has made all the payments for that year.

125 per month * 12 = 1500 per year.

at the end of the first year, the remaining balance is equal to 5000 - 1500 = 3500.

5% interest added to that makes it equal to 3675.

at the end of the second year, the remaining balance is 3675 - 1500 = 2175.

5% interest added to that makes it equal to 2283.75

at the end of the third year, the remaining balance is 2283.75 - 1500 = 783.75.

5% interest added to that makes it equal to 822.9375

it will take her another 7 months to finish paying off at 125 per month.

therefore, it will take her 3 years and 7 months to pay off the loan.

there will be 6 months with payments of 125 per month for a total of 750.

the balance remaining of 822.9375 - 750 = 72.9375 will be paid by the end of the 7th month.

interest in the last year of payment will not be charged since there will be no remaining balance after the third year.