Question

Casey burrows 3200 for a computer system at a rate of 4.25% per year. How much simple interest will he owe if he takes 4 months to repay the loan? Round to the nearest cent.

Answer 1

$45.33

Explanation:

First we find 4.25% of $3200 to find the interest in 1 year.

For simple interest, use this formula:

I = Prt

where

I = amount of interest

P = principal amount (the amount deposited or borrowed)

r = annual interest rate

t = number of years

We have

I = ?

P = $3200

r = 4.45% = 0.425

t = 1 year

I = ($3200)(0.0425)(1)

I = $136

The interest in 1 year is $136.

Now we convert 4 months to years

1 year = 12 months

4/12 = 1/3

4 months are only 1/3 of a year, so he pays only 1/3 of the interest of an entire year.

1/3 * $136 = $136/3 = $45.3333...

Answer: $45.33