Question

2. Brynn borrowed $25,000 at 1% per month from a family friend to start her entrepreneurial venture on December 2, 2011. If she paid back the loan on June 16, 2012, how much simple interest did she pay?

Answer 1

She paid a simple interest of $3,125.00 on the borrowing of $25,000

What is simple interest?

The simple interest on a loan or an investment can be determined as the principal multiplied by interest multiplied by the number of periods.

This is quite different from compound interest where the interest earned previously would earn interest in the future alongside the principal

I=PRT

I=interest on loan=unknown

P=amount borrowed=$25,000

R=interest rate=1% per month

T=12.5 months( from December 2 2011 to December 1 2012 makes one year and from December 1-16 gives 15 days, which is 0.5 of one month)

I=$25,000*1%*12.5

I=$3,125.00

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