If a three-month, 6% bank loan for $5,000 is signed on October 1, the interest expense for the month of October is $75.

Question

Quizplus · Accepted Answer

The interest expense for the month of October would be $25, not $75. To calculate the monthly interest, you would take the annual interest rate (6%) and divide by 12 to get the monthly rate (0.5%). Then, you would multiply the monthly rate by the loan amount ($5,000) to get the monthly interest expense, which is $25.

If a Three-Month, 6% Bank Loan for $5,000 Is Signed