Question

Chris Shopper received a $1,000 discount loan to purchase a washer and dryer. The loan was offered at 12% for 120 days. What are the proceeds?

Answer 1

To evaluate the proceeds we use the formula given by:
A=P(1+r)^t
where:
A=future value
P=principle
r=rate
t=time
from the question:
P=$1000, r=0.12, t=120/30=4 months=1/3 years
hence plugging the value in the formula and solving we obtain:
A=1000(1+0.12)^1/3
A=1038.5
Therefore the proceeds will be:
1038.5-1000
=$38.5

Answer 2

Proceeds = $ 959.96

Explanation:

Principal = $1000

Interest = 12%

Time = 120 days = 0.33 years

n = number of times the interest rate is compounded in one year

⇒ n = 12

`\text{Compound Interest = }Principal* (1+(rate)/(100* n))^(n\cdot t)\\\\\text{Compound Interest = }1000* (1+(12)/(12* 100))^(12* 0.33)\\\\\bf\implies \textbf{Compound Interest = }\$1040.04`

Now, Interest = Compound Interest - Principal

⇒ Interest = 1040.04 - 1000

= $ 40.04

And the Proceeds are = Principal - Interest

= 1000 - 40.04

= $ 959.96