Question

Tara Sergio took out a single-payment loan for $2,500 at 8.75% ordinary interest to pay her federal income tax bill. If the maturity value of the loan was $2,572.92, in how many days would Tara have to pay back the loan?

Answer 1

• 120 days

-------------

First determine the interest and then use the formula for ordinary interest.

Calculate the interest:

• Maturity Value = Principal + Interest
• Interest = Maturity Value - Principal = 2572.92 - 2500 = 72.92

Use the ordinary interest formula:

• Interest = (Principal × Rate × Time) / 360, where Rate is the annual interest rate, and Time is in days.

Plug in the values and solve for Time:

• 72.92 = (2500 × 8.75% × Time) / 360 or
• 72.92 = (2500 × 0.0875 × Time) / 360

Isolate the Time variable:

• Time = (360 × 72.92) / (2500 × 0.0875) = 26251.2 / 218.75 ≈ 120

Tara would have to pay back the loan in approximately 120 days.