Question 1: (10 Points) State the simple interest formula and explain how simple

Question

Question 1: (10 Points)

State the simple interest formula and explain how simple interest is calculated.

Calculate the simple interest for a loan for $39,545 for 3 1/2 years at 7.5% interest per year. Round to the nearest cent.

How much is owed in total at the maturity date?

Question 2: (10 Points)

You decide to take out a loan for $6,000, at 7% yearly interest on the date that Unit 4 starts. If you repay the loan on December 31st (at the end of the current year).

Exact time (days) of loan: __________

Using ordinary interest, calculate the interest and total owed.

Using exact interest, calculate the interest and total owed.

Question 3: (10 Points)

You decide to take out an ordinary interest loan of $30,000 at 4%, on a 90 day note.

In 45 days you decide to make a payment of $10,000 on the loan. What is your new principal? Explain how you got the answer.

How much did you pay at the end of the loan overall? How does this differ from how much you would have paid overall had you not made a payment of $10,000 after 45 days?

Question 4: (10 Points)

Find the bank discount and proceeds using ordinary interest on an unsecured promissory note made to Leslie Smith for $12,000 at 7% annual simple interest from June 15 to September 15 for this year. Use the steps below to find your answers.

Explain the difference between a simple interest note and a simple discount note.

Exact time (days) of note: __________

What is the bank discount?

What are the proceeds that Leslie Smith receives?

What is the amount Leslie Smith repays?

Explanation / Answer

Dear Student, only one question is allowed at a time.

Question 1)

Part 1

Formula for calculating Simple Interest

= Principal x Rate of Interest x Time (days/months) as applicable.

To calculate simple interest, we have to first find out the Principal amount on which interest is to be calculated. Then, we multiply it with the rate of interest. The rate of interest can be per annum or per month. If the interest is stated per annum, then the time given is to be converted into per annum. For example, if the interest is per annum but time is given 2 months, then to convert the time into per annum we have to divide it by 12. Similarly, if time is given in days, then we have to divide it by 365.

Part 2

Calculate the simple interest for a loan for $39,545 for 3 1/2 years at 7.5% interest per year. Round to the nearest cent.

Principal = $39,545

Rate = 7.5% interest per year.

Time = 3 1/2 years

Simple interest = Principal x Rate x Time

= $39,545 x 7.5% x 3 1/2 years

= $ 10,380.6

Part 3

How much is owed in total at the maturity date?

Total amount owed = Principal + Interest

= $39,545 + $ 10,380.6

= $ 49,925.6.

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