Question

lila gallo borrowed $10000 from her bank to build up the inventory of her stationery store. the loan was payable in six months at 12 percent interest per year, which the bank deducted in advance. how much money did lila actually receive/

Answer 1

Answer:

Explanation:

Amount actually received = Initial amount - interest payment

Interest payment = 10,000*12%/2 = 10,000*6% = 600

Amount actually received = 10,000-600 = $9,400

Answer 2

Answer:

$9,400

Explanation:

generally bank loans collect their interests when the loan payments are due, e.g. every monthly payment includes a part that pays interests and another that reduces principal amount. In this case, Lila got a 6 month loan that requires a lump sum payment at the end of the sixth month, but the bank charges her interest in advance, which is a fancy way of actually charging a higher effective interest.

she will receive principal - (principal x interest charges) = $10,000 - ($10,000 x 12%/2) = $10,000 - $600 = $9,400

in this case, the interest rate that Lila is effectively paying = $600 / $9,400 =   6.38% semiannual or 12.77% annual