Mitchell has been given the option of either paying his $600 bill now or settling it for $612 after 1 mo. If he chooses to pay after 1 mo, find the simple interest rate at which he would be charged.
A) The simple interest rate is 0.25%/year.
B) The simple interest rate is 24%/year.
C) The simple interest rate is 25%/year.
D) The simple interest rate is 12%/year.

Question

Mitchell has been given the option of either paying his $600 bill now or settling it for $612 after 1 mo. If he chooses to pay after 1 mo, find the simple interest rate at which he would be charged. ​
A) The simple interest rate is 0.25%/year.
B) The simple interest rate is 24%/year.
C) The simple interest rate is 25%/year.
D) The simple interest rate is 12%/year.

Quizplus · Accepted Answer

The simple interest rate can be calculated using the formula $I = PRT$, where $I$ is the interest, $P$ is the principal amount, $R$ is the rate of interest per time period, and $T$ is the time period. Here, $I = \$612 - \$600 = \$12$, $P = \$600$, and $T = \frac{1}{12}$ year (since it's for 1 month). Rearranging the formula to solve for $R$, we get $R = \frac{I}{PT}$. Substituting the given values, $R = \frac{12}{600 \times \frac{1}{12}} = 0.02$ or $2\%$/month, which is $24\%$/year.

Mitchell Has Been Given the Option of Either Paying His