Question

Suppose you take out a margin loan for $70,000. You pay an effective rate of 6.3 percent. If you repay the loan in two months, how much interest will you pay? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

To calculate the interest on a $70,000 loan with a 6.3% interest rate over two months, use the simple interest formula. The total interest comes to $735.

Step-by-step explanation:

To calculate the amount of interest you will pay on a $70,000 margin loan with an effective rate of 6.3 percent when repaying in two months, you'll need to use the simple interest formula, which is Interest (I) = Principal (P) × Rate (R) × Time (T).

In this case, the principal is $70,000, the rate is 6.3 percent or 0.063 (as a decimal), and time is 2/12 of a year since we're looking at two months. Now, calculating the interest:

I = P × R × T
I = $70,000 × 0.063 × (2/12)
I = $735

You will pay $735 in interest if you repay the loan in two months.

Answer 2

I will pay $537.43 as interest.

Step-by-step explanation:

Principal amount = F = $70,000

Effective rate = 6.3% / 12 = 0.525% monthly

t = 2 months

Interest Amount for 2 months = [2x (r x F) / 1 − ( 1 + r )^−t] = [2 x (0.525% x 70,000) / 1 - ( 1 + 0.525%)^-2 = $735 / 0.01042 = $70537.43

Interest Amount = $70537.43 - 70,000 = $537.43

Interest payment of two month margin loan for amount $70,000 at effective rate 6.3% is $537.43.