DECA Hospitality and Tourism Cluster Practice Exam

Which loan option would incur the lowest total simple-interest charges?

1. A loan for $7,000 at 8% interest for 2 years

2. A loan for $6,000 at 8.5% interest for 1 year

3. A loan for $4,000 at 9% interest for 6 years

4. A loan for $5,000 at 8.75% interest for 4 years

The correct answer is: A loan for $6,000 at 8.5% interest for 1 year

To determine which loan option incurs the lowest total simple-interest charges, it's essential to calculate the interest for each option using the simple interest formula: \[ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \] For the second option, which is the chosen answer, the calculation would be: - Principal: $6,000 - Rate: 8.5% (or 0.085 as a decimal) - Time: 1 year Using the formula, the interest would be: \[ \text{Interest} = 6,000 \times 0.085 \times 1 = 510 \] This means the total interest charged for this loan would be $510. Comparing this to the other loan options: - For the first option ($7,000 at 8% for 2 years): \[ \text{Interest} = 7,000 \times 0.08 \times 2 = 1,120 \] - For the third option ($4,000 at 9% for 6 years): \[ \text{Interest} = 4,000 \times 0.09