Laura has two loan options for $5,000 : a simple interest loan at 4% annually and a compound interest loan at 3.5% annually, compounded annually for 2 years. Which loan will be less expensive in terms of total interest paid? Compound Interest Formula: A=P(1+(r)/(n))^nt Simple Interest Formula: A=P(1+rt)
B
More information is needed to decideD
Both loans will cost the sameThe simple-interest loan costs $5,000 × 0.04 × 2 = $400 in interest. For the compound loan, the interest is $5,000 × (1.035)² − $5,000 = $356.13 (approximately). Since $356.13 is less than $400, the Compound Interest Loan is less expensive.
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