LH borrowed $16,900 to pay for education at College. L must repay at the end of 18 months in one payment with 2 ½% interest.

Question

a.
How much interest must Leslie pay? (Do not round intermediate calculation. Round your answer to the nearest cent.)

Interest $

b.
What is the maturity value? (Do not round intermediate calculation. Round your answer to the nearest cent.)

Maturity value $

Answer 1

a.)

 

Simple interest = Principal x Rate x Time

 

= 16900(2.5%)(18/12)

= 16900(2.5/100)(3/2)

= 169(5/2)(3/2)

= 169(10/4)(3/2)

= 1690(1/4)(3/2)

= 845(3/4)

= 2535/4

= $633.75

 

b.)

 

maturity value = Principal + Simple Interest

 

= $16,900 + $633.75 = $17,533.75

 

 

Answer 2

Assuming 2.5% annually compounded interest,

 

a

Interest = $16,900(1.025^1.5 - 1) = $637.69

 

b

Maturity value = $16,900 + $637.69 = $17,537.69

Answer 3

If it's  2.5% over 18 months or 2.5% is the annual rate, there will be a difference.  If it is simple or compound interest makes a good bit of difference.  Do you have the context of this problem to answer the two questions?

 

For simple interest:

16,900 times .025 in one case.  Add that interest amount to 16,900 to get the total maturity value.

16,900 times .0375 if 2.5% is annual.  Add as above to get total maturity value.

 

Maybe someone else has a comment.

 

 

Jim Gibbs