Question

On April 1, LeBron provides services to a customer on account. The customer signs a four-month, 9% note for $7,000. What is the interest expense on the note after two months?

a) $105
b) $63
c) $126
d) $315

Answer 1

To calculate the interest expense on a note, the simple interest formula is used. After two months, the interest expense on a 9% note for $7,000 is $105, which is calculated by multiplying the principal by the interest rate and time period.

Step-by-step explanation:

The student is asking about calculating the interest expense on a 9% note for $7,000 after two months. To find the interest expense, we use the simple interest formula I = PRT, where I is the interest, P is the principal amount, R is the interest rate, and T is the time in years. The principal amount P is $7,000, the interest rate R is 9% (or 0.09), and the time T is two months (or 2/12 of a year).

First, we convert the monthly rate to an annual rate by dividing it by 12:

T = 2 months / 12 months = 1/6 year

Next, we calculate the interest:

I = $7,000 * 0.09 * 1/6

I = $7,000 * 0.015

I = $105

Therefore, the interest expense on the note after two months is $105 (option a).