You have just obtained a personal loan for a new home movie system under the simple interest method.You have borrowed $12,000 for 9 months at an annual rate of 10%.Your marginal tax rate is 28%.What are the total interest charges you would pay if the loan is paid off in one payment at the end of the nine month period?

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Quizplus · Accepted Answer

The total interest charges can be calculated using the simple interest formula: Interest = Principal x Rate x Time. Here, Principal = $12,000, Rate = 10% or 0.10 per year, and Time = 9/12 year (since it's for 9 months). So, Interest = $12,000 x 0.10 x (9/12) = $900. Tax considerations do not affect the calculation of interest charges directly; they would affect the net cost of the loan to the borrower but not the calculation of interest itself.

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