Question

Simpson Conglomerates borrows $12,000 for a short-term purpose. The loan will be repaid after 120 days, with Simpson paying a total of $12,400. What is the approximate cost of credit using the APY, or annual percentage yield, calculation?

A. 4.33%B. 10.34%C. 12.25%D. 12.46%

Answer 1

Answer: B. 10.34%

Step-by-step explanation:

Based on the information that has been provided in the question, first and foremost, we have to know the amount of interest paid which will be:

= $12400 - $12000

= $400

We tgen calculate the cost of capital which will be:

= 400/12000

= 3.33%

Then, Annual percentage rate will be:

= 3.33% × 365/120

= 3.33% × 3.04

= 10.34%