Question

Jay Jenkins takes out a 9.5% simple interest loan today that will be repaid 3 months from now with a payoff amount of $2000. What amount is Jay borrowing?

Answer 1

Answer: the amount that Jay is borrowing is $1954

Explanation:

The formula for determining simple interest is expressed as

I = PRT/100

Where

I represents interest paid on the loan.

P represents the principal or amount taken as loan

R represents interest rate

T represents the duration of the loan in years.

From the information given,

Interest = total amount - principal

I = 2000 - P

R = 9.5%

T = 3 month. Converting to years, it becomes 3/12 = 0.25 year

Therefore,

2000 - P = (P × 9.5 × 0.25)/100

2000 - P = 0.02375P

P + 0.02375P = 2000

1.02375P = 2000

P = 2000/1.02375

P = $1954