How much total interest would Justin pay over the seven years, and what would be a justification for this added cost
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To calculate the total interest Justin would pay over seven years, we need to know the principal amount (the initial amount borrowed or invested), the interest rate, and the compounding period (how often interest is applied).
Let's assume Justin borrows $10,000 at an annual interest rate of 5% compounded annually. Here's how you can calculate the total interest:
1. Determine the annual interest: $10,000 x 0.05 = $500. This is the amount of interest Justin would pay in the first year.
2. Multiply the annual interest by the number of years (seven in this case): $500 x 7 = $3,500. This represents the total interest paid over seven years.
It's important to note that the total interest depends on the interest rate, the principal amount, and the duration of the loan. In this case, the total interest paid is $3,500 over seven years.
As for the justification for this added cost, borrowing money often involves paying interest as compensation to the lender for providing the funds upfront. The lender assumes the risk of lending the money, and the interest represents the cost of borrowing. The justification for this added cost is that it allows individuals like Justin to access funds they need, such as for purchasing a car or starting a business, even if they cannot pay the full amount upfront. Ultimately, paying interest allows people to achieve their goals sooner by spreading out the financial burden over time.