Question

Solve for the amount of monthly interest that is owed on an interest-only loan based on the following facts: Loan amount $115,000, annual interest rate of 7%? $575, $671, $767, or $7,475?

Answer 1

$671.

Explanation:

We are asked to find amount of monthly interest on a loan amount of $115,000 with an APR of 7%.

`I=Prt`, where,

I = Amount of interest,

P = Principal amount,

r = Annual interest rate in decimal form,

t = Time in years.

First of all, we need to convert our given rate in decimal form and time in years as:

`7\%=(7)/(100)=0.07`

1 month = 1/12 year

`I=\$115,000* 0.07* (1)/(12)`

`I=\$9583.333* 0.07`

`I=\$670.833\approx \$671`

Therefore, the monthly interest is $671 and option B is the correct choice.

Answer 2

The amount of interest owed is $115,000×0.07/12 ≈ $671.