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The Jones family wants to remodel their kitchen. They have saved $23,000 in the last two years. Their contractor says the remodel will cost $40,000. They can borrow the difference at a monthly interest rate of 2% simple interest. If they pay the loan off in six months, how much will they have paid? Homework Help ✎

First calculate how much money the Jones need to borrow.
$40,000 − $23,000 = $17,000

Calculate the amount of interest that is added per month.
$17,000(0.02) = $340

Since the Jones can pay off the loan in 6 months, multiply the amount of interest added per month by 6.
$340(6) = $2,040

Finally, add that amount to the original to find the amount of money the Jones need to pay.
$17,000 + $2,040 = $19,040

Do you see how the simple interest formula was used?
I = (17,000)(0.02)(6)