Question

7. Marcia Rodger borrowed $3,500 from Valley Bank at a rate of 9 1/2 %. The date of the loan was October 10. Marcia hoped to repay the loan by February 10. Assume the loan is based on ordinary interest. What will the interest cost be? How much will Marcia repay on February 10? What would the payback be if exact interest was used?

Answer 1

If Marcia borrowed $3,500 from a bank with 9.5% interest on October 10, then by October 10 the following year, she would pay 3,500+(3,500/9.5) back. To find this for each month, we need to do (3,500/9.5) / 12. This gets us about $30.7 for each month. February 10 is 4 months ahead of October 10, so we get our 30.7 and multiply that by 4. We get $122.8 from that, so that is the interest. We add that to 3,500 and we get $3,622.80. This is how much Marcia will have to pay off for her loan. I hope this helps, and if not; good luck.