Question

Alpha Company loaned $5,000 to Beta Company on October 1, Year 1 at 6% interest per year. The loan has a one year term and calls for payment at maturity. The amount of cash Alpha will collect for interest in Year 1 is ______.

Answer 1

The amount of cash Alpha will collect for interest in Year 1 is $300.

Step-by-step explanation:

Simple interest is a straightforward method of calculating interest on a loan or investment, where the interest is calculated based on the initial principal amount, the interest rate, and the time period.

To calculate the amount of cash Alpha will collect for interest in Year 1, we can use the formula for simple interest:

Interest = Principal x Rate x Time

Given:

Principal (loan amount) = $5,000

Rate of interest = 6% (expressed as a decimal, 0.06)

Time = 1 year

Substituting these values into the formula:

Interest = $5,000 x 0.06 x 1

Calculating the interest:

Interest = $300

Therefore, Alpha will collect $300 in cash for interest in Year 1.