Simple Interest Formulas Assignment: Interest And Loan Concepts

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Interest and Loan Concepts Assignment (Total 40 Points)

Question 1: (10 Points)

a) State the simple interest formula and explain how simple interest is calculated.
To calculate simple interest you will use the following formula.
I = PRT (I = Interest, P = principal, R = rate, and T = time
To find the interest you will first convert the rate to a decimal (E.g 3.5% = 0.035) and then you would replace the P with the amount of the loan, replace R with the rate converted to a decimal and replace the T will the duration of the loan (E.g 1yr, 2yrs etc..). Once the numbers are inputted you would multiple across to get the interest amount.

b) Calculate the simple interest for a loan for $39,545 for 3 1/2 years at 7.5% interest per year. Round to the nearest cent.
I = 39,545 (7.5%) (3.5) = 39,545 (0.075) (3.5) = 10,380.56
Thus, the interest on the loan is $10,380.56

c) How much is owed in total at the maturity
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a) In 45 days you decide to make a payment of $10,000 on the loan. What is your new principal? Explain how you got the answer.
First find the total amount w/interest on the 90 day note.
$30,000 * .04 * 90/360 = $300
If I paid the note in full on day 90, I would owe an additional $300 in interest.
$30,000 + $300 = $30,300
$30,300 – $10,000 = $20,300

New principal after payment and interest in $20,300

b) How much did you pay at the end of the loan overall? How does this differ from how much you would have paid overall had you not made a payment of $10,000 after 45 days?
The total loan amount with interest was $30,250.75. By paying the $10000 45 days in advance I was able to save $49.25. If I did not pay any in advance I would of paid $30,300 total.

Question 4: (10 Points)

Find the bank discount and proceeds using ordinary interest on an unsecured promissory note made to Leslie Smith for $12,000 at 7% annual simple interest from June 15 to September 15 for this year. Use the steps below to find your

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