Ronald is borrowing $20,000 using the discount method.His bank is offering him an annual percentage rate of 8.5% and he is taking out the loan for 24 months.How large of a check will Ronald receive from this loan when he leaves the bank? How much will he repay?

Question

Quizplus · Accepted Answer

Using the discount method, the formula for the amount of money received by the borrower (P) is:

P = D/(1 - rT)

Where D is the amount of money borrowed, r is the annual percentage rate as a decimal, and T is the time in years.

Plugging in the given values, we get:

P = 20,000/(1 - 0.085*2)
P = 16,600

So Ronald will receive a check for $16,600 when he leaves the bank.

To find out how much he will repay, we need to use the formula for the interest that is charged:

I = DrT

Where I is the interest charged, D is the amount of money borrowed, r is the annual percentage rate as a decimal, and T is the time in years.

Plugging in the given values, we get:

I = 20,000*0.085*2
I = 3,400

So Ronald will repay a total of $20,000 + $3,400 = $23,400.

Therefore, the correct answer is B.

Ronald Is Borrowing $20,000 Using the Discount Method