XYZ Corporation borrowed $100,000 for six months from the bank. The rate is prime plus 2 percent. The prime rate was 8.5 percent at the beginning of the loan and changed to 9 percent after two months. This was the only change. How much interest must XYZ corporation pay?
A) $2,476
B) $5,417
C) $18,212
D) $21,500

Question

Quizplus · Accepted Answer

The interest amount can be calculated in two parts, one for the first two months and one for the remaining four months.

For the first two months, the interest rate would be 8.5% + 2% = 10.5%. The interest amount can be calculated as:

Interest for first two months = 100,000 x 10.5% x (2/12) = $1,750

For the remaining four months, the interest rate would be 9% + 2% = 11%. The interest amount can be calculated as:

Interest for remaining four months = 100,000 x 11% x (4/12) = $3,667

Total interest amount = $1,750 + $3,667 = $5,417

Therefore, the correct answer is B.

XYZ Corporation Borrowed $100,000 for Six Months from the Bank