Hosea borrowed $20,000 to buy a new speed boat. The interest rate on his loan is 5%. If he plans to pay the loan back in three years, how much interest will he pay? What will be the total cost that he will owe including interest?

a. Interest amount is $3,000.

b. Total cost is $23,000.

Step-by-step explanation:

a. How much interest will he pay

This can be calculated as follows:

Interest amount = Principal loan Amount * Interest rate * Number of years (1)

Where;

Principal loan Amount = $20,000

Interest rate = 5%

Number of years = 3

Substituting the values into equation (1), we have:

Interest amount = $20,000 * 5% * 3 = $3,000

b. What will be the total cost that he will owe including interest?

Total cost = Principal loan Amount + Interest amount = $20,000 + $3,000 = $23,000