An individual borrowed $10,000 nine months ago and another $6,000 three months ago and he wishes to pay off this loan with a payment of $X today.You are given that j₂ = 10% and that the practical method of crediting/charging interest is used.Determine $X.

Question

Quizplus · Accepted Answer

The practical method of crediting/charging interest involves applying the interest rate to the initial principal for the entire period, without compounding. Given an annual simple interest rate of 10%, the interest for 9 months on $10,000 would be $10,000 * 0.10 * (9/12) = $750, and for 3 months on $6,000 would be $6,000 * 0.10 * (3/12) = $150. Therefore, the total amount to be repaid is $10,000 + $750 + $6,000 + $150 = $16,900. The closest option to this calculation is $16,912.50, which accounts for the slight difference due to rounding or a more precise calculation of the interest.

An Individual Borrowed $10,000 Nine Months Ago and Another $6,000