Question

A man borrowed from a bank under a promissory note that he signed in the amount of p25,000.00 for a period of one year. He received only the amount of p21,915.00 after the bank collected the advance interest and an additional amount of p85.00 for notarial and inspection fees. What was the rate of interest that the bank collected in advance?

Answer 1

The bank collected an advance interest rate of 4.34% from the borrower.

Step-by-step explanation:

To find the rate of interest that the bank collected in advance, we need to calculate the difference between the amount borrowed and the amount received after deducting the advance interest and fees.

The difference is given by: p25,000 - p21,915 = p1,085.

This amount of p1,085 represents the interest collected in advance by the bank. To find the rate, we can use the formula for simple interest:

Interest = Principal * Rate * Time

Substituting the values, we have p1,085 = p25,000 * Rate * (1 year).

Simplifying the equation gives us:

Rate = p1,085 / (p25,000 * 1)

Rate = 0.0434 or 4.34%.