word problem

Question

jennifer borrows 20,900 from her bank to open a flower shop. she agrees to repay in 18 months with simple annual interest of 10.4%.

A) how much must she pay the bank in 18mos

B) how much of the amount in part (a) is interest

Answer 1

You are given the following:

     Principal = money borrowed = $20,900

     Time = period of time to repay = 18 months = 1.5 years

     Rate = rate of interest charged = 10.4% 

The amount that she must pay the bank in 1.5 years (18 months) is given by the following formula:

     Amount = Principal + Simple Interest

Therefore, we first have to calculate the simple interest, which is given by the following formula:

     Interest = Principal • Time • (Rate/100)

                 = 20,900 • 1.5 • (10.4/100) 

                 = 20,900 • 1.5 • 0.104 

                 = 3,260.4

     Amount = Principal + Interest 

                 = 20,900 + 3,260.4

                 = 24,160.4

Thus, the amount paid back to the bank in 1.5 years is $24,160.40 (A) and $3,260.40 of this amount is interest (B).