Question

If a borrower's monthly interest payment on an interest-only loan at an annual interest rate of 7.3% is $877, how much was the loan amount (rounded to the nearest hundred)?A. $120,100B. $100,300C. $144,200D. $134,200

Answer 1

C. $144,200

Explanation:

We have been given that a borrower's monthly interest payment on an interest-only loan at an annual interest rate of 7.3% is $877.

To find the loan amount, we will use simple interest formula.

`I=Prt`, where,

I = Amount of interest,

P = Principal amount,

r = Annual interest rate in decimal form,

t = Time in years.

One month will be equal to 1/12 year.

`7.3\%=(7.3)/(100)=0.073`

Upon substituting our given values in simple interest formula, we will get:

`877=P*0.073*(1)/(12)`

`877*12=P*0.073*(1)/(12)*12`

`10524=P*0.073`

`P*0.073=10524`

`(P*0.073)/(0.073)=(10524)/(0.073)`

`P=144164.3835616438356`

Upon rounding to nearest hundred, we will get:

`P\approx 144,200`

Therefore, the loan amount was $144,200 and option C is the correct choice.