In order to help finance the purchase of a new house, the Abdullahs have decided to apply for a short-term loan (a bridge loan) in the amount of $120,000 for a term of 2 mo. If the bank charges simple interest at the rate of 14%/year, how much will the Abdullahs owe the bank at the end of the term?
A) $122,800
B) $240,000
C) $117,400
D) $126,300

Question

In order to help finance the purchase of a new house, the Abdullahs have decided to apply for a short-term loan (a bridge loan) in the amount of $120,000 for a term of 2 mo. If the bank charges simple interest at the rate of 14%/year, how much will the Abdullahs owe the bank at the end of the term? ​
A) $122,800
B) $240,000
C) $117,400
D) $126,300

Quizplus · Accepted Answer

To calculate the interest, use the formula I = PRT, where P = principal ($120,000), R = annual interest rate (14% or 0.14), and T = time in years (2/12). Thus, I = $120,000 * 0.14 * (2/12) = $2,800. The total amount owed is the principal plus interest: $120,000 + $2,800 = $122,800.

In Order to Help Finance the Purchase of a New