The owner of a corner shop borrows £1500 from a bank to buy a new fridge for the shop after the old one breaks down, and agrees to repay the loan over 3 yea...
Question 1 Report
The owner of a corner shop borrows £1500 from a bank to buy a new fridge for the shop after the old one breaks down, and agrees to repay the loan over 3 years at a simple interest rate of 5% per year.
- Work out the total interest charged over the 3 years. (2)
- Work out the total amount the owner repays altogether, including interest. (2)
Answer Details
Simple interest is calculated only on the original amount borrowed, using \(\text{interest} = \text{principal} \times \text{rate} \times \text{time}\), and the total repayment adds this interest to the loan.
(a) Interest over 3 years:
\[ £1500 \times 0.05 \times 3 = £225 \][2]
(b) Total repaid:
\[ £1500 + £225 = £1725 \][2]
Because this is simple rather than compound interest, the £225 could also be found by working out one year's interest, £75, and multiplying by 3, since the interest does not itself earn further interest.
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