Answer
(a) The school must pay interest of $\$140$
(b) The future value of the loan is $\$20,140$
Work Step by Step
(a) With simple interest, this is the formula we use to calculate the amount of interest $I$.
$I = P~r~t$
$P$ is the present value
$r$ is the interest rate
$t$ is the number of years
We can calculate the interest.
$I = P~r~t$
$I = (\$20,000)(0.12)(\frac{7}{12})$
$I = \$140$
The school must pay interest of $\$140$
(b) The future value of the loan is the present value plus the interest.
$A = P + I$
$A = \$20,000 + \$140$
$A = \$20,140$
The future value of the loan is $\$20,140$
