Congratulations on the purchase of your new food truck. You are considering thre
different credit options shown below. Using your knowledge of simple interest, ded
which choice is the best option for you and explain why. (Be sure to use the cost
the food truck that you decided on in Part 2.)
Option 1: a 4 year loan with simple interest
Total Amount Paid: Interest Paid:

Question

Congratulations on the purchase of your new food truck. You are considering thre
different credit options shown below. Using your knowledge of simple interest, ded
which choice is the best option for you and explain why. (Be sure to use the cost
the food truck that you decided on in Part 2.)
Option 1: a 4 year loan with

simple interest
Total Amount Paid: Interest Paid:

UpStudy AI · Accepted Answer

To determine the best credit option for purchasing your new food truck, you'll need to compare the total costs associated with each financing choice. Since you've provided details for **Option 1**, we'll start by calculating the **Total Amount Paid** and **Interest Paid** under this option using the **simple interest** formula.

### **Simple Interest Formula**

The simple interest formula is:

$$
\text{Interest} = P \times r \times t
$$

$$
\text{Total Amount Paid} = P + \text{Interest}
$$

Where:
- $$ P $$ = Principal Amount (Cost of the Food Truck)
- $$ r $$ = Annual Interest Rate (in decimal)
- $$ t $$ = Time in Years

### **Option 1: 4-Year Loan at 6% Simple Interest**

**Given:**
- **Principal ($$ P $$)**: _[Insert the cost of the food truck here]_
- **Annual Interest Rate ($$ r $$)**: 6% or 0.06
- **Loan Term ($$ t $$)**: 4 years

**Calculations:**

1. **Interest Paid:**
   $$
   \text{Interest} = P \times r \times t = P \times 0.06 \times 4 = 0.24P
   $$
   
2. **Total Amount Paid:**
   $$
   \text{Total Amount Paid} = P + \text{Interest} = P + 0.24P = 1.24P
   $$

**Example Calculation:**

*Assuming the cost of the food truck is **\$50,000**, here's how the numbers would look:*

1. **Interest Paid:**
   $$
   \text{Interest} = \$50,000 \times 0.06 \times 4 = \$12,000
   $$
   
2. **Total Amount Paid:**
   $$
   \text{Total Amount Paid} = \$50,000 + \$12,000 = \$62,000
   $$

---

### **Comparing with Other Options**

To determine if **Option 1** is the best choice, you'll need to perform similar calculations for the other two credit options available to you. Here's a general approach:

1. **Identify the Details of Each Option:**
   - **Loan Term ($$ t $$)**
   - **Annual Interest Rate ($$ r $$)**
   - **Type of Interest** (if different from simple interest)

2. **Calculate Interest and Total Amount Paid:**
   - Use the simple interest formula for each option.
   
3. **Compare the Total Costs:**
   - The option with the **lowest Total Amount Paid** is generally the most cost-effective.

**Example Framework for Comparison:**

| **Option** | **Loan Term (Years)** | **Interest Rate** | **Interest Paid (\$)** | **Total Amount Paid (\$)** |
|------------|-----------------------|--------------------|------------------------|----------------------------|
| Option 1   | 4                     | 6%                 | 0.24P                  | 1.24P                      |
| Option 2   | _t₂_                  | _r₂_%              | _Interest₂_            | _Total₂_                   |
| Option 3   | _t₃_                  | _r₃_%              | _Interest₃_            | _Total₃_                   |

*Replace _t₂_, _r₂_%, etc., with the specific details of Options 2 and 3.*

### **Final Recommendation**

After calculating the **Total Amount Paid** for all three options:

- **Choose the option with the lowest Total Amount Paid** if all other factors (like loan flexibility, penalties, etc.) are equal.
- **Consider other factors** such as the reputation of the lender, flexibility in repayment, and any additional fees or benefits associated with each loan option.

**Note:** Always ensure that you understand the full terms and conditions of each loan option before making a decision. It might also be beneficial to consult with a financial advisor to assess which option aligns best with your financial situation and business goals.

---

If you provide the specific cost of the food truck and details of the other two credit options, I can offer a more detailed comparison tailored to your situation!
To decide the best credit option for your new food truck, calculate the total amount paid for each loan using the simple interest formula. For Option 1, a 4-year loan at 6% interest, the total amount paid is 1.24 times the cost of the truck. Compare this with the other options to choose the one with the lowest total cost.

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