Question

What is the total paymentrequired to pay off a promissorynote issued for $800.00 at 8%ordinary interest and a 180-dayterm?

Answer 1

EXPLANATION:

Given;

We are told that a promissory note of $800 is issued at the rate of 8% ordinary interest and a 180-day term.

Required;

We are required to determine the total payment required to pay off the promissory note.

Step-by-step solution;

For a repayment on a promissory note the interest payable will be calculated by the simple interest method.

That is;

$Interest=P\times R\times T$

Here, the variables are;

$\begin{gathered} P=Principal\text{ }amount\text{ }borrowed \\ R=rate\text{ }of\text{ }interest \\ T=time\text{ }in\text{ }years \end{gathered}$

For a 180-day term, the time in years will now be the total number of months divided by 12. This is because the term is not up to a year, and therefore the time will be prorated as a ratio of a complete year (12 months).

$\begin{gathered} Interest=P\times R\times T \\ \\ Interest=800\times0.08\times\frac{6}{12} \end{gathered}$

Note here that the 180-day term is the equivalent of 6 months (considering 30 days in a month).

We can now complete the computation of the interest;

$\begin{gathered} Interest=800\times0.08\times\frac{6}{12} \\ \\ Interest=32 \end{gathered}$

The total repayment will now be the principal amount borrowed plus the interest calculated.

Hence, we have

$\begin{gathered} Repayment=800+32 \\ \\ Repayment=832 \end{gathered}$

ANSWER:

Option A: $832.00