Question

3) A friend borrows $4000 from you, agreeing to pay 4.55% simple interest. The loan plus interest is to be paid back after 30 months. When the loan is repaid how much will be the interest portion of the repayment? What will the total repayment be, including interest and the principal?

4) You invested $10,000 In a CD that offers 4 1/4% rate compounded monthly. How much will you have in a CD after 6 years and 3 months? What is the interest earn on an account?

Answer 1

3) Simple Interest = (Principal * rate * time) / 100 = (4000 * 4.55 * 30) / (100 * 12) = 455

The interest portion = $455 and the amount to be repaid = 4000 + 455 = $4455

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4) For Compound Interest; Amount = Principal(1 + r/100)^t.

Time in months = 6 * 12 + 3 = 75 and monthly rate = 4.25/12

Amount = 10000 * (1 + 4.25/1200)⁷⁵ = 10000 * 1.30363 = 13036.30

The Interest earned = Amount - Principal = 13036.30 - 10000 = $3036.30

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