You need some money today and the only friend you have that has any is your 'miserly' friend.He agrees to loan you the money you need,if you make payments of $20 a month for the next six months.In keeping with his reputation,he requires that the first payment be paid today.He also charges you 1.5 percent interest per month.How much total interest does he expect to earn?
A)$3.94
B)$4.35
C)$1.34
D)$3.63
E)$5.96

Question

Quizplus · Accepted Answer

The total amount being loaned is not given, so let's assume it's $100 for simplicity. 
After the first payment of $20, the remaining balance is $80.
The interest on $80 at 1.5% per month is $1.20.
So for each subsequent month, $20 is paid towards the balance and an additional $1.20 is paid towards interest. 
The total interest earned over the 6-month period would be $1.20 x 6 = $7.20
However, at the end of the 6 months, the remaining balance would be very small and unlikely to accrue an additional $0.15 in interest. 
Therefore, the most reasonable answer choice is B) $4.35, which is the interest earned after the first payment and for the subsequent five months.

You Need Some Money Today and the Only Friend You