Question

Suppose you borrow $15,000 for three years from your rich uncle and agree to pay simple interest of 8.5% annually. If the interest is payable on a prorated basis and you pay off the loan after 27 months, how much would you pay in interest?

A $3,165.75
B $2,868.75
C $2,486.50
D $3,338.25

Answer 1

The amount of interest you would pay is $2,531.25.

Step-by-step explanation:

To calculate the amount of interest you would pay, you need to first calculate the interest for the 27 months. The formula for simple interest is: interest = principal * rate * time.

In this case, the principal is $15,000, the rate is 8.5%, and the time is 27/12 = 2.25 years. Plugging these values into the formula:

interest = $15,000 * 0.085 * 2.25 = $2,531.25

So, you would pay $2,531.25 in interest.