A man takes out a loan at a simple discount rate of d = 7.5%.If the amount he pays back in 11 months is $8235,what is the fee he pays for borrowing the money and when does he pay this fee?
A)$529.74,paid today at issue of the loan
B)$529.74,paid at the end of 11 months
C)$566.16,paid today at issue of the loan
D)$566.16,paid at the end of 11 months

Question

Quizplus · Accepted Answer

The formula for calculating the fee, F, is:
F = P * d * t
where P is the initial amount borrowed, d is the discount rate, and t is the time period.
We know the amount paid back, P = $8235, and the discount rate, d = 7.5%. We need to find the time period, t, in years.
Since the loan is for 11 months, we convert this to years by dividing by 12:
t = 11/12 years
Now we can solve for F:
F = $8235 * 0.075 * (11/12)
F ≈ $566.16
Therefore, the best choice is C: $566.16, paid today at the issue of the loan.

A Man Takes Out a Loan at a Simple Discount