Question

Gene McDonald’s bank granted him a single-payment loan of $5,000 for 90 days at 9% exact interest. What is the amount of exact interest owed?

Answer 1

Interest can be ordinary or exact. Exact interest is calculated for a 365-days period. Let's calculate how much is that. For a 365-day period amount is loan multiplied by interest rate:

A = L • I

A = 5000 • 9/100

A = $450

We already stated that this is for a 365-day period. Now let's find how much is that for a 90-day period given in this text. For this we can use the proportion:

90 : x = 365 : $450

x = 450 • 90 / 365

x = $111