Question

Anjali went to Citizens Bank and borrowed $7,000 at a rate of 8%. The date of the loan was September 20. Anjali hoped to repay the loan on January 20. Assuming the loan is based on ordinary interest, Anjali will pay back how much interest on January 20?      A. $187.18 B. $187.17 C. $189.78 D. $188.22

Answer 1

$189.78

Explanation:

"The computation of the interest on January 20 is shown below:

= Principal × interest rate × number of days ÷ total number of days in a year

= $7,000 × 8% × 122 days ÷ 360 days

= $7,000 × 8% × 0.338

= $189.78

The 122 days are calculated below:

September - 10 days

October - 31 days

November - 30 days

December - 31 days

January - 20 days

Total - 122 days

And we assume the 360 days in a year"

Answer 2

From September 20 to January 20, there are 4 months only which is equivalent to 1/3 of a year. The interest earned by the investment, P, made is calculated
I = P x i x n
where I is the interest, P is the principal amount, i is the interest rate, and n is the number of years. Substituting the known values,
I = ($7000)(0.08)(1/3)
I = $186.67
Hence, the answer to this item is $186.67.