Question

I, Clarissa McKnight, do promise to pay Angela Mahoney the sum of $1250. Repayment is to be made in the form of 24 equal payments of $56.25 due on the 10th of each month, beginning July 10

Determine the simple interest rate of the promissory note.

a. 2%
b. 1.5%.
c. 3%
d. 4%.

Answer 1

To calculate the simple interest rate of the promissory note, we need to determine the total interest paid over the course of the 24 payments.

The total amount to be repaid is 24 x $56.25 = $1350.

The total interest paid is $1350 - $1250 = $100.

The simple interest rate can be calculated using the formula:

Simple Interest = (Total Interest / Principal) x (100 / Time)

where Principal is the amount borrowed, Time is the time period in years, and we multiply by 100 to express the interest rate as a percentage.

In this case, the Time period is 2 years (24 payments of 1 month each).

So, the simple interest rate is:

(100 / 1250) x (100 / 2) = 4%

Therefore, the answer is option (d) 4%.