Question

A person borrows $100,000 from the bank for 6 months at an annual simple interest rate of 5%, what steps do you take to determine how much principal and interest are due at the end of the 6 months to determine how much he/she needs to pay to the bank? Please describe how you would solve.

Answer 1

$100,000 and $2,500

Step-by-step explanation:

The computation of the principal and the interest due at the end of the 6 months is shown below:

As we know that

Simple interest is

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $100,000 × 5% × (6 months ÷ 12 months)

= $2,500

The total amount would she paid is

= Principal + interest

= $100,000 + $2,500

= $102,500