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? $40.00 $144.00 $960.00 $1,440.00

Answer 1

The correct answer is 960.

Explanation:

120/360=0.333

Remember to use 360 because a bank year is 360 days.

Then you use the interest formula:

I= P×R×T

I=1000×0.12×0.333

39.99=I

Now take 1000 because your principal is 1000, and subtract that from 1000

1000-39.99=960

Answer 2

The loan proceeds will be given as follows:
A=P(1+r/100)^n
Plugging the values we obtain
n=4 months=
A=1000(1+12/3*100)^1
A=$1040
hence the proceeds will be:
1040-1000=$40